Should you consider investing in Shopify (SHOP)?


Worm Capital LLC, an investment management firm, has released its Q2 2021 “Longleaf Partners Small-Cap Fund” letter to investors – a copy of which can be downloaded here. A quarterly portfolio return of -15.18% net of fees was recorded by Worm Capital’s long / short equity growth strategy for the second half of 2021, and of -1.49% for its long-only equity strategy, while than its benchmark, the S&P 500 Index, by comparison, returned 15.25% over the same period. You can check out the top 5 holdings of the fund to get an idea of ​​their top bets for 2021.

In Worm Capital’s Q2 2021 letter to investors, the fund mentioned Shopify Inc. (NYSE: SHOP) and discussed its position on the company. Shopify Inc. is an ecommerce company based in Ottawa, Canada, which currently has a market capitalization of $ 190.5 billion. SHOP has returned 34.73% year-to-date, extending its 12-month returns to 44.81%. The stock closed at $ 1,525.06 per share on August 6, 2021.

Here’s what Worm Capital has to say about Shopify Inc. in its Q2 2021 letter to investors:

“In particular, the very nature of travel is changing: longer stays, more flexible remote work policies, etc. As its market matures, we see important similarities with our position in Shopify: An international focus led by managers who understand that, in a land grabbing environment, focus on its unique value proposition for its sellers (i.e. in other words, we like companies that play the long game). Unlike Airbnb, Shopify generated a positive attribution in the last quarter, but we believe this opportunity is still largely undervalued in the long term.

Last year in Q2 2020 Letter to Investors, we wrote a bit about the similarities and differences between AMZN and SHOP, but concluded that they both “display win-win dynamics in their respective fields. “. We still think the thesis is true: electronic commerce is still, relatively speaking, in its infancy. Despite the outbreak of the pandemic, online retailing still accounts for less than 15% of overall retail sales, according to the latest data from the Fed.

This means, in practice, that the opportunity for a low-end disruption (v. Shopify is increasing its GMV at high speed (114% year-on-year in its most recent quarter to over $ 37 billion), but it’s a hard business to value, which is good. We like tricky valuations. Our research process is looking several years into the future, which is really the only way to properly assess a business, especially in a disruptive environment. (Trying to look at potential short-term profits or even a simple price / sales multiple is not a good way to model valuations on Shopify.) When we think of a position like Shopify, we consider them as a generational company, much like AMZN, which is building the global infrastructure to enable small and medium-sized businesses to transact online and, most importantly, to maintain their identity and their knowledge. r unique branding.

Where AMZN optimizes efficiency, SHOP optimizes the experience. The scale of this opportunity is vast, and the reach of Shopify is wide. The goal, like ABNB, is to keep costs down for sellers, attract new sellers, and improve the ecosystem for traders. “The rebels are winning,” said Shopify president Harley Finkelstein recently (in a quote we loved so much that we made it the title of this letter). “We are betting on a different vision for the future of commerce. We allow each company to present its brand in its own way. A stark contrast to selling in a centralized market. “”

Based on our calculations, Shopify Inc. (NYSE: SHOP) ranks 28th in our list of the 30 most popular stocks among hedge funds. BOUTIQUE was in 91 hedge fund portfolios at the end of the first quarter of 2021, compared to 90 funds in the fourth quarter of 2020. Shopify Inc. (NYSE: SHOP) has generated a return of 37.57% in the past 3 months.

The reputation of hedge funds as savvy investors has been tarnished over the past decade, as their hedged returns could not keep up with the unhedged returns of stock indices. Our research has shown that small cap hedge fund stock selection managed to beat the market by double digits every year between 1999 and 2016, but the margin for outperformance has shrunk in recent years. Nonetheless, we were still able to identify in advance a select group of hedge funds that have outperformed S&P 500 ETFs by 115 percentage points since March 2017 (see details here). We were also able to identify in advance a select group of hedge funds that underperformed the market by 10 percentage points per year between 2006 and 2017. Interestingly, the margin of underperformance of these stocks has increased in recent years. Investors who are long in the market and short on these stocks would have reported more than 27% per year between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next big investing idea. For example, the pet market is growing at an annual rate of 7% and is expected to reach $ 110 billion in 2021. So we take a look at the 5 best stocks for animal lovers. We’re going through lists like the top 10 battery stocks to pick the next Tesla that will deliver 10x performance. Even though we only recommend positions in a tiny fraction of the companies we analyze, we check as many stocks as possible. We read letters from hedge fund investors and listen to equity pitches at hedge fund conferences. You can sign up for our free daily newsletter on our homepage.

Disclosure: none. This article originally appeared on Insider Monkey.


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