Jim Cramer Endorses Shopify Stock despite Losses in Q3

Shopify (SHOP) stock is rising today and was up 1.94% as of 10:54 AM ET. However, yesterday, the e-commerce stock fell around 1.7% and closed at $313.57. SHOP stock is trading 23.4% below its 52-week high of $409.61 in August and about 166.6% above its 52-week low of $117.64. Shopify’s market cap was $35.5 billion yesterday.

SHOP stock was strong until August but then weakened in September and fell more than 19%. It gained just 0.6% in October. Since Shopify reported disappointing third-quarter earnings results on October 29, its stock has fallen by 3.5%.

Should investors buy Shopify stock as it dips? Or are investors expecting it to fall further?

Jim Cramer’s view on Shopify stock

Shopify posted losses in Q3 as the company invested heavily in fulfillment centers to expand its customer network. Furthermore, the company’s revenue growth of 45% YoY (year-over-year) was its slowest in four years, disappointing investors. The weakness led to a sell-off.

Despite the weakness, CNBC’s Jim Cramer is still bullish on Shopify stock. After Shopify announced its surprise earnings loss last week, Cramer advised investors not to sell the stock. On the company, he said, “They have a loss but they are spending money in order to grow.” He added, “I defy Shopify, defy the sellers of Shopify. You will regret that you sold it. You don’t know what you are doing. I like the stock.”

This isn’t the first time Cramer supported Shopify stock. On October 16’s Mad Money Lightning Round, TheStreet reports Cramer said, “I would hang onto it. I like the stock very much.”

However, Cramer also sold his stake before the stock dipped. He purchased Shopify stock in May for $260 and sold it for around $388 on August 23. So why is Cramer now optimistic again on Shopify stock?

Shopify’s focus on fulfillment centers

Shopify currently has over 1 million merchants around the world and is investing heavily in its fulfillment centers to expand its customer network. Up until 2023, Shopify plans to spend $1 billion to set up US fulfillment centers.

The fulfillment centers could help Shopify take on rivals Amazon (AMZN) and eBay in deliveries. The e-commerce giant is considered the second-most popular online shopping destination after Amazon. Spotify’s recent acquisition of 6 River Systems could also help it compete with Amazon.

Shopify expects higher revenue

With its third-quarter earnings release, Shopify raised its 2019 revenue guidance. The company now expects its revenue to grow to $1.55 billion–$1.56 billion this year. It estimates 6 River Systems will add around $30 million to its revenue next year. Meanwhile, analysts expect its revenue to rise 45.0% YoY to $1.56 billion in 2019 and 35.8% YoY to $2.11 billion in 2020.

Analysts’ views on Shopify stock post Q3 results

Of the 29 analysts covering Shopify stock, 16 suggest “buy,” 11 suggest “hold,” and two suggest “sell.” Their views were similar last month, though just one was recommending “sell” then.

Analysts’ average target price of $361.58 for SHOP implies a 15.3% upside based on its closing price yesterday of $313.57. After Shopify’s earnings release results, Baird lowered its target price to $400 from $410. Raymond James reiterated its “outperform” rating with a $365 target.

Credit Suisse analyst Brad Zelnick believes the company’s gross merchandise volumes, international growth, and Shopify Plus platform are driving its stock. Additionally, some analysts are optimistic about the company’s international growth. Several hedge funds and institutional investors have remained bullish on Shopify stock.

Technical indicators

Shopify’s 14-day RSI (relative strength index) score of 46.5 implies investors are neutral on the stock. RSI scores above 70 indicate a stock is overbought, while scores below 30 suggest it’s oversold. Yesterday, Shopify stock closed near its midrange Bollinger Band of $320.97, also implying the stock is neither overbought nor oversold.

Based on SHOP’s technical indicators, we would say it looks like a “hold.” However, given Cramer’s and others’ optimism, investors could pick up the stock for long-term gains.