Is Shopify (SHOP) Stock A Buy or Sell?

With the fourth-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter of 2021. One of these stocks was Shopify Inc (NYSE:SHOP).

Is Shopify Inc (SHOP) stock a buy or sell? The best stock pickers were becoming more confident. The number of long hedge fund positions improved by 9 in recent months. Shopify Inc (NYSE:SHOP) was in 90 hedge funds’ portfolios at the end of December. The all time high for this statistic is 57. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SHOP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 81 hedge funds in our database with SHOP holdings at the end of September.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

Alex Sacerdote of Whale Rock Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage (or at the end of this article). Keeping this in mind we’re going to check out the key hedge fund action regarding Shopify Inc (NYSE:SHOP).

Do Hedge Funds Think SHOP Is A Good Stock To Buy Now?

At Q4’s end, a total of 90 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SHOP over the last 22 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Lone Pine Capital was the largest shareholder of Shopify Inc (NYSE:SHOP), with a stake worth $2032.2 million reported as of the end of December. Trailing Lone Pine Capital was SCGE Management, which amassed a stake valued at $1012 million. ARK Investment Management, Whale Rock Capital Management, and Coatue Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Strategy Capital allocated the biggest weight to Shopify Inc (NYSE:SHOP), around 26.4% of its 13F portfolio. Himension Capital is also relatively very bullish on the stock, earmarking 16.67 percent of its 13F equity portfolio to SHOP.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Shopify Inc (NYSE:SHOP) headfirst. Renaissance Technologies, initiated the biggest position in Shopify Inc (NYSE:SHOP). Renaissance Technologies had $223.6 million invested in the company at the end of the quarter. John Armitage’s Egerton Capital Limited also initiated a $193.7 million position during the quarter. The other funds with new positions in the stock are Michael Pausic’s Foxhaven Asset Management, Zach Schreiber’s Point State Capital, and Jay Chen’s Himension Capital.

Let’s also examine hedge fund activity in other stocks similar to Shopify Inc (NYSE:SHOP). These stocks are Royal Dutch Shell plc (NYSE:RDS), Philip Morris International Inc. (NYSE:PM), Honeywell International Inc. (NYSE:HON), International Business Machines Corp. (NYSE:IBM), BHP Group (NYSE:BBL), American Tower Corporation (REIT) (NYSE:AMT), and Lockheed Martin Corporation (NYSE:LMT). This group of stocks’ market valuations resemble SHOP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RDS 34 1661345 3
PM 52 4426846 2
HON 45 983560 4
IBM 51 998446 11
BBL 18 1215975 2
AMT 61 4726391 -1
LMT 53 2527739 6
Average 44.9 2362900 3.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.9 hedge funds with bullish positions and the average amount invested in these stocks was $2363 million. That figure was $8723 million in SHOP’s case. American Tower Corporation (REIT) (NYSE:AMT) is the most popular stock in this table. On the other hand BHP Group (NYSE:BBL) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Shopify Inc (NYSE:SHOP) is more popular among hedge funds. Our overall hedge fund sentiment score for SHOP is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7% in 2021 through March 12th and still beat the market by 1.6 percentage points. Unfortunately SHOP wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on SHOP were disappointed as the stock returned 0.8% since the end of the fourth quarter (through 3/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.