Shares of Shopify (NASDAQ:SHOP) have been on fire lately. Despite trade-war talks continuing to heat up, U.S. stock markets continue to tiptoe higher. But that’s not the case with Shopify stock, a name that’s taking the stairs two at a time and barging its way higher.
While the stock is up more than 60% so far on the year, SHOP is up almost 20% over the past month alone. From its lows earlier this month, Shopify stock price is up 22%. It’s causing investors to question whether they’ve missed the rally and if it’s too late to buy now.
It’s really interesting, because, just a few weeks ago, it looked like SHOP stock was going to break down. Shares had broken below the 200-day moving average and there were concerns over Shopify as reports surfaced that Facebook’s (NASDAQ:FB) Instagram would put a larger emphasis on shopping.
Whether that comes to fruition and how that impacts Shopify remains to be seen. Instagram severely dented Snap (NYSE:SNAP) and its growth. But it remains to be seen what would happen with the introduction of Instagram Shopping and how that will ultimately impact Shopify stock.
Trading Shopify Stock Price
I figured we could start with the charts and see what the Shopify stock price has been up to. As you can see above, shares temporarily broke below the 200-day moving average. After touching abou $130, they’re up over $160 now.
Clearing the $150 level was an important move. Not only did it put SHOP stock back over the 50-day moving average (and all three major moving averages), but it also put the stock above an important resistance level. That mark has been resistance since March and did not act as support in June or July.
This sets up SHOP for the next important development: the $150 to $155 level (blue box) should act as support going forward.
Conservative bulls who want to own Shopify stock can buy on a pullback into this support zone. Aggressive bulls can buy now and stop-out should this zone fail to act as support. The best case scenario? SHOP stock consolidates/pulls back over the next few days, allowing it to spend some time above this support zone. Should it hold, the $175 double-top mark is in the cards.
Valuing SHOP Stock
One reason for the excitement? Growth.
Revenue growth is expected to surge this year, with estimates calling for 53% growth to $1.03 billion. It will be the company’s first year in the billion-dollar club. For 2019, estimates call for 39% growth to $1.43 billion. Times are good for the Shopify sales team.
That growth may catch a hand as Canadian cannabis companies are turning to Shopify to drive digital sales. The whole pot-stock craze behind Tilray (NASDAQ:TRLY), Canopy Growth Corp (NASDAQ:CGC) and others may help to push Shop stock higher too.
Last quarter, the company beat on earnings per share and revenue expectations, as sales surged 62%. Guidance for next quarter and the full year came in ahead of consensus expectations, while Shopify turned an unexpected profit.
On the earnings front, analysts expect non-GAAP earnings to grow 31% to 21 cents a share. In 2019, though, those estimates call for significant growth, with 190% growth to 61 cents per share.
The downside? Valuation. While growth is impressive, its valuation is sky-high. Because SHOP stock isn’t really that profitable, using a price-to-earnings ratio is essentially useless. But with a $17.4 billion market cap, Shopify essentially trades at 17 times this year’s sales. On 2019’s numbers, shares trade at roughly 12 times sales.
Those are still lofty numbers and interested bulls have to be aware of that risk. For now though, the trend is Shopify’s friend.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.