Shopify: Fast Growth in e-Commerce

03/22/2017 2:50 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Shopify (SHOP) is one of the leaders of a new growth theme in the market — technology-centric companies that are helping small- and mid-sized businesses thrive online, explains Mike Cintolo, growth stock expert and editor of Cabot Top Ten Trader.

Shopify’s specialty is its e-commerce platform, which allows small firms to do business through a variety of channels online, facilitates payments, ties into all the hottest social media platforms, and allows many critical back-end functions that a growing company needs.

Importantly to us, Shopify is serving a very large market—there are probably 30 million businesses with fewer than 500 employees in the U.S. alone, nearly all of which could use Shopify’s help. And many are signing up!

The company had more than 375,000 clients at year-end, up 50,000 from just one quarter before, which is boosting recurring revenue through monthly fees (up 63% in the fourth quarter) and gross merchandise volume sold through its platform (up 95%).

Earnings are hovering around breakeven as the company invests in its product and grabs as many clients as it can. That seems smart to us because the product is very “sticky,” as once a company integrates with Shopify, it tends to stick around.

Big investors agree, as they’re focusing more on overall revenue growth (up 86% last quarter) and the other key metrics mentioned above. It’s a big story.

Technically, SHOP looks like a new leader for 2017. The stock built what turned out to be a giant post-IPO base from mid-2015 (when it peaked at $42 soon after coming public) through the start of this year (it was at $43 in January), then it broke out on huge volume and ran up eight weeks in a row.

After a modest dip, SHOP has run to new highs in recent days. Some further consolidation is possible, but the trend is clearly up. You can buy a little here on a dip toward the 25-day line.

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