Don’t look now, but Shopify (TSX:SHOP)(NYSE:SHOP) stock is heating up again after shares took a 31% peak-to-trough fall back in August.
Although infamous short-seller Andrew Left of Citron Research maintains bearish conviction on the name, one has got to think that he’s starting to feel a bit of a squeeze. And going into 2020, I think he and other shorts may have something to worry about, as Shopify looks to break out to $600 in what could the mother of all short squeezes.
There’s no doubt that Shopify is an expensive stock, and although the business is good enough to justify a pie-in-the-sky premium, one has to draw the line somewhere. Shopify is a stock that’s so hot that it’s bound to overextend to the upside (and downside), making it tough to take profits in the company whose stock is known to defy the laws of gravity.
With Shopify’s fourth-quarter earnings on tap for February 10, Shopify could be ready to make a sustained move higher, as investors look to punch a ticket into the stock before it has the opportunity to deliver another round of blowout numbers.
In the last quarter, management updated investors on the roll-out of its Fulfilment Network, which is going smoothly and could be a potential catalyst for the stock (and a booster of sales growth) in the new year and beyond. Seven facilities are under development and are slated to go online in Q1 2020.
As Shopify pulls the curtain on its Q4 results, all ears will be on management commentary, as it looks for further updates and progress with “add-ons” that could further widen Shopify’s moat in a highly competitive small- and-medium-sized business (SMB) e-commerce industry that Shopify has continued to reign as king.
For now, the price of admission into Shopify is extremely high at over 32 times sales. The odds of another 30-40% correction in shares shouldn’t be ruled out if management commentary is muted or if the Q4 numbers themselves are anything short of spectacular. Fundamentally, Shopify looks overvalued and is lacking a margin of safety, but from a technical perspective, Shopify is looking like a heck of a trade going into 2020.
If you’ve yet to get skin in the game, it makes sense to nibble at these heights, but leave room for seconds or thirds, as Shopify stock will surely exhibit tremendous volatility, as usual, over the next year and beyond.
