17 Sep

Shopify: Was Jim Cramer Right in Selling the Stock?

WRITTEN BY Sneha Nahata

Jim Cramer, the widely-known host of CNBC’s Mad Money, recently disclosed his position on Shopify (SHOP) stock. He bought Shopify stock, through his charitable trust, in May. Cramer sold the stock, bought for $260 per share, at $388 on August 23. He made a profit of over $100 per share.

Following Cramer’s sale, the stock reached its 52-week high of $409.61 on August 27. Since then, Shopify shares have fallen 17.5%. As of Monday, Shopify stock stands at $337.93.

The stock also fell more than 5% after hours on Monday and finished at $321.00 after it announced a new secondary stock offering. On Monday, Shopify announced a new stock offering of 1.9 million Class A subordinate shares, according to the company’s SEC filing. The company has priced its offering at $317.50 per share, which ends up with gross proceeds of $603.25 million. Shopify expects to channel the net proceeds from the offering to strengthen its balance sheet. The company also intends to use the funds in its growth strategies.

So, did Cramer know that Shopify stock was going to fall? If not, then what made him sell the stock despite the company’s stellar performance? We’ll discuss Cramer’s views on Shopify stock.

Cramer’s views on the Shopify stock

According to Cramer, the stock behaves like a parabola. He thinks that the stock “has been parabolic … and I don’t trust parabolas. I don’t like them. I have lost more money on stocks that went into parabola mode than I care to admit.” According to Cramer, he didn’t know that Shopify stock would fall anytime soon. He just sold the stock to book profits, according to reports.

Shopify’s performance this year

Shopify stock has been on a growth trajectory since it reported upbeat fourth-quarter earnings results in February. The stock gained when it beat analysts’ earnings and revenue estimates in the first quarter. In the most recent earnings, Shopify reported better-than-expected results. While revenues of $362 million beat analysts’ estimates of $350 million, the EPS of $0.14 beat the consensus estimates by $0.02 per share.

Shopify has also raised its revenue outlook for fiscal 2019. The company expects the e-commerce retailer to post revenues of $1.51 billion–$1.53 billion. Earlier, Shopify expected fiscal revenues of $1.48 billion–$1.50 billion. Analysts expect the company’s fiscal revenues to grow  43.4% YoY to $1.5 billion. For the third quarter, Shopify expects its revenues to be $377 million–$382 million. Analysts expect third-quarter revenues at $383.3 million.

The company has been making many acquisitions to expand its business-to-business opportunities. Shopify has also invested in many fulfillment centers to attract more merchants to its platform. Analysts reportedly think that Shopify’s fulfillment centers should help it compete with retailers like Amazon, eBay, and Walmart.

How do analysts view Shopify stock?

Analysts are gaining confidence in Shopify stock. Notably, analysts treat the stock as a potential competitor to Amazon (AMZN). The company has reportedly become the second-largest e-commerce platform behind Amazon. Shopify stock has gained 144.1% this year, while Amazon stock has returned 20.4% during the same period. As of Monday, Shopify’s market capitalization stands at $38 billion. The company has outpaced eBay (EBAY), which has a market capitalization of $33.8 billion. Amazon’s market cap was around $894 billion Monday.

Most of the analysts favor a “buy” rating on Shopify. Among the 28 analysts, 16 recommend a “buy,” 11 recommend a “hold,” and one recommends a “sell.”

Currently, analysts have a 12-month target price of $361.92 on the stock. On Monday, the stock was trading at a discount of 6.6% to analysts’ 12-month target price. The median target price is $370.00 as of Monday.

Technical levels

The company’s 14-day RSI (relative strength index) score is 40.56, which indicates that investors are neutral on the stock. Notably, an RSI reading above 70 indicates that a stock is in “overbought” territory, while an RSI level below 30 means that the stock is in “oversold” territory.

On Monday, the stock closed near its Bollinger Band lower range level of $332.35. The value shows that the stock is in “oversold” territory.

Looking at the technical indicators, we think that the stock is a “sell.” However, we should ignore the fact that the stock has given significant returns this year. Analysts also favor the stock. We’ll have to watch the stock to provide direction in the near term.

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