Watching shares of Canadian technology giant Shopify Inc. (TSX:SHOP)(NYSE:SHOP) bounce around recently, it appears clear that investors are trying to place a value on future expectations of growth, given uncertainty around economic activity due to the COVID-19 pandemic.
On the one hand, growth in e-commerce is a strong secular tailwind, which is only getting stronger thanks to the coronavirus. Businesses are being forced to go online to sell their wares as all non-essential bricks and mortar locations are shut down for the time being.
On the other hand, there have already been reports circulating about Small to Medium-sized Enterprises (SMEs) filing for bankruptcy protection. The numbers are staggering. If a company goes bankrupt, that’s it for Shopify’s customer and therefore its recurring revenue.
The question then becomes: will the number of old school bricks and mortar businesses going online more than offset the staggering number of businesses going bankrupt? I don’t think so.
It’s just my opinion, but I believe markets right now are still somewhat in denial over the potential of an elongated recession in which bankruptcies and unemployment skyrocket. I think at this point that it’s a mathematical certainty, and therefore there simply isn’t enough bearish sentiment being factored into Shopify share price right now.
Invest wisely, my friends.