Shopify Inc. (SHOP.TO)

A prominent short seller came out with an attack on the business model. The work was pretty sketchy in the short seller’s report. They will deal with it when they report on November 2. He continues to like it. The pull back is just a cooling off. It is a normal course correction in a stock with a high multiple. They anticipate profitability in the fourth quarter.

The short position of Mr. Andrew Left and Citron?You can’t say his news is fake news. You can say that he is delivering his opinion. He has never quite understood this company to personally get into it, but has been jealous of anybody who has. However, he has funds that hold it. The more he hears about the methodology, he wonders about the casino aspect of venture capital listing on its site, when he knows historically that 1 out of 20 venture capital used to be the rate of success. He doesn’t feel it will go higher.

By any stretch of the imagination, this is still a speculative stock. They’ve invested about $900 million, but valuation is $9 billion. Yet they haven’t earned any money and are still negative EBITDA. A game changer with a really great technology and can be widely used by many businesses. Has a good overall business model.

He would not buy it. He would want to see it stabilize more, considering the short report. He may have to buy it back higher but he would want to know they are executing. It has been unbelievable. It is volatile without short reports. You can trade it around using a tool. Once their numbers come out the stock tends to gap up. There will be a cloud over them until their next quarterly numbers come out.

One of his Top Picks about 45 days ago. Recommended it in late August and got in at a good price, and had been up 25%. He uses stop losses, and on the first tweak he saw from Citron, he exited his position. As a result, he lost 6%-7%. It is going to be a real tug-of-war for the next couple of days. All the analysts have not budged. We need to see this play out for a while. He is cheering for the company.

He is Short this, but not because of any holes in the story. It was just based on excessive valuations. Growth is still in place. In the short term, the problem is because of questions that were brought up by Citron, especially about the affiliate system, where a lot of people are setting up storefronts just to bring in others. That is not going to last. If you own, he would take a little money off the table.

Designed for merchants to end up getting payments through the web, and have been very successful at doing that. Sales have grown significantly. In 2016, they lost $.17, and the 2017 forecast is looking for a loss of $.09. In 2018 they go positive at $.21, but compared to a stock price of roughly $126, that is a pretty big multiple. Thinks that is what the big debate is about.

Analysing this, particularly on a very short-term basis, it is more than he can deal with. When it was all story, then you could at least say that maybe the story can just keep on going and the stock will keep going higher, but now somebody has taken a big bucket of mud and thrown it into the water. There will now be a period when we sort this all out, and can we filter the mud out? Is the growth story intact? The downside risk would be about $84. Fundamentally, Shopify is a brilliant concept, and should serve investors well in a long-term sense.

This is Citron Research’s latest target for Shorting. Baird & Co came out later in the day saying that his biggest arguments don’t hold water. The business model is not broken. The Seller wants to get a lot of noise out there so that the stock will go lower. Welcome to the world of concept stocks that don’t pay dividends and don’t have profits.

This has been a good Canadian story. The issue for him is, what do you pay for a good story today. It has very, very high expectations, and is part of the whole disruption world. What they do for businesses is wonderful, and they have a good lock, as proved by the fact that Amazon (AMZN-Q) uses their technology. The issue for him is valuation.

Another extremely expensive, high growth stock. They are migrating up the food chain to larger companies. It is priced for perfection. Another company could complete with them. If you have made nice money he would take the money and run.

He can’t do seasonality on this company, because you need 20 years of data. However, the chart shows that it just keeps on going higher and higher. It recently broke into an all-time high, and is outperforming the market. Momentum indicators are on the upside.

[Is it too late to add?] Technology is a key driver of the market right now. You want positions there. Don’t focus only on one sector. He has recommended this a couple of times on this show. They only have a 5% market share at present. They are moving into credit and delivery. This is a company that can continue to grow. These are three and four percent positions in portfolios.

If you buy this tomorrow and hold it for 5-10 years, you will do just fine. If you buy it tomorrow and hold it for 1 year, he has no idea what could happen. A very high-priced stock. Growth rates of these companies are impressive. The future is strong, but the price you pay is high. Buy a little bit tomorrow, and buy more 6 months from now. That is the way you have to chew your way into these stocks.

Had a tremendous run up to about $130, recently consolidated, and has now broken through that period of consolidation. Feels it is a little extended. Added to his holdings at about $136 when it broke through. The last period of consolidation was relatively short and relatively shallow, which generally is very bullish technically. Their runway for growth is tremendous as there is something like 10 billion small business owners in North America, and they have penetrated about 500,000. It would be an excellent complement to Amazon’s (AMZ-N) business. Wait for a bit of a pullback into the mid-$140 to low-$140.