By Glenn Rogers, Contributing Editor
No one likes to give in to a notorious short seller but we have to face reality. Andrew Left of Citron Research really does have the power to move markets.
He demonstrated this in 2015 when he accused health care company Valeant Pharmaceuticals of dubious accounting practices. Valeant shares, which were trading at over $300 at the time, came crashing down and are now less than $20. Left and his company, who had shorted the stock, cleaned up.
Now he has set his sights on Shopify (TSX, NYSE: SHOP), claiming that most of the company’s customers are not legitimate. He calls it “a company that has mastered the good old get-rich-quick scheme”. He said it is not an $11 billion company and the stock should be trading at about half where it was when he posted his YouTube video last week.
The market reacted as you might expect. The shares were down 11% on Wednesday and continued to slide on Thursday and Friday.
Shopify put out a statement saying the company “vigorously defends our business model and stands resolutely behind our mission and the success of our merchants.” The statement went on to say that stores using Shopify software had generated US$10.7 billion in gross merchandise volume in the first six months of the year.
Investors weren’t convinced, however, and the shares kept sliding.
It’s a real stretch to suggest that the company is nothing more than a get-rich-quick scheme. The stock is listed on both the Toronto and New York stock exchange and has been closely scrutinized by analysts. But once these reports gain currency, there is no telling where or when the slide will stop.
Aggressive investors may want to use the sell-off to take a position. However, IWB readers are sitting on a handsome profit here, even after the slide. I originally recommended the stock at C$28.24 in February 2016. It closed on Friday at C$122.92 (US$97.92) for a gain of 335% in Canadian dollar terms.
Given the storm that Left has stirred up, it would be imprudent to watch that kind of a gain melt away. Therefore my advice is to take your profit and watch this story play out from the sidelines.
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