With Shopify Inc. (TSX: SHOP)(NYSE:SHOP) stock rallying an impressive 34% so far in 2019, investors may be kicking themselves for missing the boat.
But do you want to know the secret to making money in all situations?
The market is very much moved by fundamentals, but also by investor psychology and sentiment.
Yes, Shopify is a tech stock that has been a star performer. Yes, Shopify has proven the critics wrong.
But for those investors who have chosen to stay away from the stock because of the risks involved and because they were looking for a more predictable stock with more visibility, there is no shame in that.
Missing out on some of upside in the early stages because you are not willing to take the downside risk is a solid investing strategy.
The secret to consistently making money is patience and discipline — and not to be afraid to go against the market because that’s where a lot of money can be made.
So, back to Shopify.
The stock has returned 600% in the last three years — a huge success story.
But looking in the rearview mirror too much will not serve you well.
Onwards and upwards
What does the future have in store for Shopify?
Let’s start with the market. The S&P/TSX Composite Index (TSX:^OSPTX) has rallied so sharply in 2019 and is quickly approaching 2018 highs of over $16,500.
This move has surprised many investors, with questions remaining as to the sustainability of it.
While interest rates do not seem to be moving higher as previously expected, the Canadian economy remains in a precarious position, with consumer debt high, delinquencies rising, and world economies showing weakness.
If this all comes to a head, growth stocks that are trading at very lofty valuations, like Shopify stock, will be among the hardest hit.
On a more company-specific level, this leading cloud-based commerce platform designed for small and medium-sized businesses has filled a need that was screaming to be filled, with new and old business owners struggling to get a handle on the new online world of business.
So subscriptions and revenue have been experiencing explosive growth, as Shopify has achieved a leading multichannel operating system that many merchants have come to rely on.
Earnings estimates are falling
For 2019, the consensus EPS estimate is currently $0.40 compared to $0.59 previously, and for 2021 and 2022, the situation looks very similar.
For 2021, the current mean consensus estimate is $1.45 compared to the previous $1.65 (for a 12% reduction), and for 2022, the current mean estimate is $3.19 compared to $3.82 previously (for a 16.5% reduction).
This is not a good place to be, as falling estimates will eventually take down the stock price.
