SHOP and valuation and high allocations


As we’ve seen above, lots of smart and dedicated and thoughtful Fools have chimed in that it wasn’t so much the goofy short attack that makes them worry about SHOP, but the high valuation metrics.

A few of you have allocated more than 15% of your portfolios to SHOP. I can’t imagine these valuation arguments––many of them grounded and sound––make your tummies feel easy.

What’s your internal counter to these concerns? What allows you to have such a high allocation, still, while others are selling? What about Shopify the business has given you such great confidence?

Monkey also has a high SHOP allocation, but admits to feeling wobbly due to this week’s events, but mostly due to our Foolish contributors on this board who don’t have such high confidence.


Monkey (long SHOP)



I sold mine since I didn’t have much and was in profit. My plan is to buy back in cheap. So it is pretty much a given that it will not go lower and the price will go through the roof so I can grumble to myself about selling it.

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What’s your internal counter to these concerns? What allows you to have such a high allocation, still, while others are selling? What about Shopify the business has given you such great confidence?

Like Gaucho Chris said, I find the growth in the customers encouraging. It’s not only the growth, but it’s the growth while facing a headwind of many start up businesses failing. I am in the camp that the TAM is in the tens of millions, and I see solid evidence of investments resulting in increased capabilities. I do think that SHOP will turn a profit corner soon, and we will be on a solid growth trajectory up.

The one legitimate question raised was Tinker’s comment on the stock sale. I would like to know why all that cash is needed too. Maybe they are considering an acquisition. I wish I new.

Anyway, I sleep well holding SHOP, and believe that the best is yet to come.




Most new businesses fail so it probably is the same with e-commerce . But if every failure is replaced with 1.1 new entrants, Shopify will do fine. IMO the business plan is not in doubt, only the valuation. In a month or so we will have earnings report which will answer a lot of those questions about whether SHOP is worth the high price. I think “yes” as long as the bull market holds firm and Shopify growth continues.

Most of my tech stocks are weak . Nothing goes straight up forever. It’s not just a SHOP problem .


mauser, your mention of 1.1 replacement customers made me think of nuclear chain reactions and needed excess neutrons. I will refrain from nerding out on that too much…also makes me think of needing 2.2-ish children to maintain a steady state population in the developed world.

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At present I’m overlooking the Pacific Ocean from an 8th floor condo on Maui, not the ideal time or place to worry about one’s investments. But, I have refrained from entering the SHOP discussion, until now.

So here’s my reasoning and also what I did after the Citron attack.

First, I really don’t put much credibility in Andrew Leff (or Left, not sure which). I admit that he has been correct in the past, but far less frequently than he has been full of cr@p. So, I immediately consider anything he says to be dubious. IMO his methods and motives are contrary to everything that constitutes my approach to investing. Whether he’s right or wrong is worth considering, but his methods are suspect. Shorting a stock and then making very public and spurious claims about the business is patently dishonest. Let’s set valuation aside for a moment, which seems to be the single point that folks on this board take seriously.

Comparisons to Herbalife and the rest of his points, just give me a break! None of that had any basis in fact, it was all made up BS with the intention of instilling fear. Seeking Alpha provides a service that is very mixed in quality, but obviously has a wide audience. Many of the readers (and authors) are very unsophisticated. I would venture that a lot of the readers don’t really know why they are invested in the companies in which they are invested. I would venture that a lot of the readers do not even know what business the companies they are invested in practice, let alone the business model, sources of revenue, etc. IMO, many SA readers are invested in a stock price chart and stock chatter. That may be harsh, and it may be wrong, I said it’s my opinion because I can personally relate to this form of “investing.”

So, I discounted the source right off the bat as an opportunist, dishonest, short-term, make-a-buck scheme. That’s what Mr. Leff does, and I will add that he’s pretty good at it. It takes a cynical person to make money this way. I’m sarcastic, but I’m not a cynic. To use this strategy repeatedly it takes a person who is not just willing to exploit others; it takes a person who finds pleasure in it. My approach is pretty well aligned with the approach Saul states every month when he reports his portfolio; I’m a “modified long term buy and hold” type investor. I always intend to make long term investments in what I perceive to be sound companies with great products/services with a moat and a solid business model. And income, or at least visible progress towards income is an important consideration. A business that continually loses more money than it has revenues is not a viable candidate. But, in the long run, businesses are not static, when the fundamentals change, I reconsider how long the term might be, hence, the “modified.” I do not subscribe to the TMF but it and forget approach.

That brings us to valuation. One of the Rule Breaker rules about investments is that great companies are almost always viewed to be overvalued. Valuation is not a science. There are a plethora of variables and methods that are used in valuation and they often lead to contradictory results. In addition, I agree with the Rule Breaker rule about valuation, great companies do tend to be overvalued, at least a lot of the time. They consistently produce upside surprises, so are they overvalued or not? Maybe so according to given valuation models, but less so according to actual performance.

That is if you can trust the management. That’s why my first rule of investing is learn what you can about the management, if the management seems dishonest, flakey or inexperienced stay away. From what I’ve been able to determine, SHOP’s management is not dishonest, flakey or inexperienced. The other thing about great companies is that valuation, at times does tend to get ahead of itself. But, I’m not a yo-yo investor. I don’t bail the moment valuation exceeds a certain level according to some preferred method and then jump back in when the stock price falls. I just don’t take that approach, and besides, it can lead to negative tax consequences, actually yielding less pocketable gains than just riding it out.

One more comment about valuation. I think it was Tinker who raised the point about the secondary offering when SHOP already had a lot of cash in the bank. What’s that all about? IMO, that’s all about great management. Name a company that doesn’t need extra cash? I think the management felt the stock was at high level and maybe had gotten ahead of itself. They probably felt it was a great time to raise extra cash and that for long term investors the dilution would be greatly outweighed by the benefits that having the cash will bring in the future, either through product enhancement, expanded sales & marketing or acquisition. Explain what you see wrong with that decision, because to me it looks like a very smart move. That’s the way I see it anyway.

So, what I did was sell the remaining AMZN stock that I held too long, and bought more SHOP in a position which I admit is already too large. But I just couldn’t resist the opportunity. You might say my decision was no different than what Mr. Leff practices. I was taking advantage of unsophisticated investors who were driven by fear rather than analysis. But, I don’t see it that way. I took no action to instigate the fear. These folks were selling in droves due to nothing I had a hand in. I didn’t try to influence anyone.

And, I’m not trying to influence the decisions of anyone who reads this, by the time you read this it might be too late to take advantage of the opportunity in any case. I’m just relating my view and what I did in light of it. As always, I encourage everyone to do their own due diligence and make their own decisions. I most certainly don’t find fault in people who thoughtfully have come to a different conclusion. This is not a hard science.


"…So, what I did was sell the remaining AMZN stock that I held too long, and bought more SHOP in a position which I admit is already too large. But I just couldn’t resist the opportunity. You might say my decision was no different than what Mr. Leff practices. I was taking advantage of unsophisticated investors who were driven by fear rather than analysis. "

I am not sure why you would do that. Will SHOP have a better future than AMZN? How can you know?

about SHOP:
On paper and relative to other growth stocks SHOP does appear to be more expensive. But the issue is not valuation because as you said it correctly valuating growth stock is very difficult.
People will pay what they want to pay for it to some degree. For what? for a great future. You can try to get an idea of what that will be but I don’t think you can quantify it with any precision.

Investors got spooked by Citron and now they are questioning SHOP’s valuation more seriously? really? They have a confirmation bias: "wasn’t it ‘too expensive’ all the way from $50 to abobe $100? In their mind, it sure is now even what most of what Citron is talking about has nothing to do with this and is nonsense. But Citron spooked some.
Some other investors, like you, think it is an opportunity given that the expectation of Shopify’s future has not changed. I would agree with that.

I think we ought to evaluate the long term expectations rather than the short term. All the discussions on this board is about the short term. What will happen to SHOP in the next few days? next few weeks or months? Who really knows? No one I assure you. We can be here talking and present our arguments for this or that but those are all speculations.

Buying more now could turn out to be moot after a few years when you get a multibagger from here. It could also go lower. who can know? the only thing I can say is that at this moment, Shopify had a great future and I expect SHOP to give me good returns from here.


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Wow I see what all the fuse is now. Always thaught through reading Shofiy was like Amazon. Boy was I wrong. Glad I never bought. A picture says a thousand words. Just one search of their web page says it all. Here it is first go to Amazon if you have never visited their web- ok this is the real deal of eccomerce. Now visit Stock symbol: SHOP, this is their web it’s based in Canada also. Basically a eBay type website forum - -I wonder what their web looks like Mercado Libre, Inc, Stock symbol: MELI Oct 6, 2017 3:59 PM ET $268.82- web: - Located throughout Latin America. So I have learned a lot researching actual webs. In text articles I think Amazon when thinking of these once low priced stocks at the start. And being compared to Amazon. Very eye opening. Just wonder how much U.S. $'s pour into Latin America and Canada from these 2 companies. I will do more research but just wanted to put this out.