Citron Research Takes Aim at Shopify’s (TSX:SHOP) Stock: Time to Buy?

Last week, Citron Research came out with yet another bearish report on Shopify’s (TSX:SHOP)(NASDAQ:SHOP) stock. Take advantage of any dip on the news.

| More on:

Canada’s tech darling is off to a blistering start to the year. Through the first few months of the year, Shopify (TSX:SHOP)(NYSE:SHOP) is up 40% year to date. As a result, it has busted through resistance, hitting new all-time highs.

Cue notable short-seller Citron Research. Late last week, Citron came out with a bearish note on the company that caused the company’s share price to lose a couple of percentage points. If you’ve been following Shopify, this is old hat for the short-seller.

Citron Research and Shopify

Citron has issued several bearish reports on Shopify. It all started in October 2017, when it questioned the company’s legitimacy. Citron referred to Shopify as a “get-rich-quick scheme” with questionable recruitment practices similar to Herbalife.

At the time, Shopify’s stock was trading around $146 per share. In the days following Citron’s report, Shopify lost 21% of its value. Within a month, it was back trading in-line with its levels prior to the report.

A little over a year ago, Citron targeted Shopify once again. This time, it targeted its business model on top of its marketing practices. It pointed to a “BIG Facebook” problem, and tied Shopify’s rapid growth to Facebook’s (NASDAQ:FB) questionable practices of sharing user data. Citron claimed that Shopify’s growth “might come to an abrupt halt” should Facebook change its privacy practices.

Once again, Shopify had enjoyed a recent run of success and was trading at $202 per share. In the weeks following Citron’s report, Shopify’s stock fell by almost 30%, trading as low as $143. By the end of June, the company had broken through resistance and traded as high as $228.

Newest short thesis

As Shopify continued to touch new highs in 2019, it was not surprising that Citron came out with a new bearish thesis. This time, Citron pointed to a “drastic change” in the competitive landscape.

Why? There has been recent news from MailChimp, Microsoft (NASDAQ:MSFT) and Instagram, which have the potential to increase the competitive pressure on Shopify.

In the days following Citron’s report, Shopify lost 7% of its value. However, on Friday an analyst from Baird countered Citron’s bearish stance by raising its target to $278 per share. Baird also indicated that channel checks continue to affirm that the company, continues to consolidate share, despite intensifying competitive concerns, and believe it will take years and significant investment for others to catch up.”

Is increased competition reason for concern? Absolutely. Investors would be foolish to discount the risks associated. Will it suffer a 50% drop and trade as low as $134 as Citron claims? Not likely.

Foolish takeaway

Citron preys on investors fears. It targets Shopify every time it starts to have a good run. Short-sellers like Citron Research make a living off fear and rely on the shaky hands of retail investors. Don’t let flashy headlines impact your investment company.

Shopify’s recent run has increased company valuations in a big way. On that basis alone, the company may see short-term weakness. However, over the long-term, Shopify is still one of the best growth stocks on the TSX.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor mlitalien owns shares of Shopify. David Gardner owns shares of Facebook. Tom Gardner owns shares of Facebook and Shopify. The Motley Fool owns shares of Facebook, Microsoft, Shopify, and Shopify.

More on Tech Stocks

Canada Day fireworks over two Adirondack chairs on the wooden dock in Ontario, Canada
Tech Stocks

Best Tech Stocks for Canadian Investors in the New Year

Three tech stocks are the best options for Canadians investing in the high-growth sector.

Read more »

doctor uses telehealth
Tech Stocks

What to Know About Canadian Small-Cap Stocks for 2025

Small cap stocks are a great way to experience outsized gains. Here is what you need to know about small…

Read more »

A worker drinks out of a mug in an office.
Tech Stocks

A Top-Performing U.S. Stock That Canadian Investors Really Should Own

Canadian investors should buy and hold this top performing U.S. stock for generating significant returns in the long run.

Read more »

dividends grow over time
Tech Stocks

Got $1,500? 2 Tech Stocks to Buy and Hold Forever

Two tech stocks with high-growth potential are sound prospects for long-term investors.

Read more »

Soundhound AI is a leader in voice recognition software
Tech Stocks

3 Tech Stocks I’m Looking to Buy in January

From tech stocks with consistent growth histories to stocks experiencing a temporary bullish momentum, there are multiple attractive options in…

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Tech Stocks

Take Full Advantage of Your TFSA: Growth Strategies for 2025

Maximize your TFSA in 2025 with proven growth strategies. Learn how to build a tax-free portfolio, avoid common mistakes, and…

Read more »

up arrow on wooden blocks
Tech Stocks

1 Soaring Stock I’d Buy Now With No Hesitation

Although it's from a rapidly evolving discipline and carries unique risks, the robotics stock's growth potential is too formidable and…

Read more »

Biotech stocks
Tech Stocks

Digital Healthcare Boom: 2 TSX Stocks Transforming Canadian Medicine

Even though telehealth stocks carry the risk factor of the tech sector and other innovative stocks, the profit margin can…

Read more »