Shopify (NYSE:SHOP) is finishing the year with plenty of momentum, up almost 22% in the last month, and closing in on its 52-week high of $409.61 set in July. While Shopify stock has a good chance of reaching $400 by New Year’s Eve, investors are probably wondering how long it will take to SHOP stock to reach $500.
Given its recent history, Shopify stock has an excellent chance of hitting $500 by April. Here’s why.
Momentum Is on the Side of Shopify Stock
Shopify stock went public on May 20, 2015, at $17 per share. In about 24 months, SHOP stock reached $100. In another 22 months, SHOP stock reached $200, and three months later it hit $300. If SHOP stock gets to $400 by the end of the year, it will have taken six months for the shares to climb from $300 to $400.
As long as the company continues to help businesses of all sizes operate their e-commerce platforms, Shopify stock will continue to rise. As far as I’m concerned, $500 is only the next rung on its way to $1,000, a level so rarefied that only 11 stocks have reached it.
Shopify stock won’t go straight up to $1,000. Stocks never do.
As recently as Nov. 8, SHOP traded for $282, which means a significant amount of its move from $300 to $400 has only come in the last five weeks.
Anyway, to get to $500, it must appreciate by 30%. Since it’s risen by 40% since Nov. 8 and has positive momentum, it shouldn’t have a problem getting halfway to $1,000 by Apr. 1.
What Could Get in Its Way?
InvestorPlace columnist Vince Martin recently suggested that Shopify’s revenue per merchant is slowing, mounting a challenge to its ongoing growth.
“Shopify’s paid user count increased to 820,000 at the end of 2018 against 609,000 at Dec. 31, 2017, a 34.6% increase. Revenue increased 59% over that period. Those two figures suggest that revenue per merchant increased by about 18% in 2018,” Martin wrote in his Dec. 6 column.
“In Q3, the company trumpeted the milestone of 1 million merchants…, which suggests paid user growth this year should be in the high 20% range. With full-year revenue expected to increase by 45%, it seems likely that revenue per merchant will grow in the range of (roughly) 13% year-over-year.”
Martin goes on to estimate that the revenue of the home businesses using Shopify’s platform is growing by an average of just 5% per year. If a recession hits, those businesses’ sales will drop, resulting in much lower gross merchandise value (GMV) for SHOP. GMV is a key productivity indicator for the company and for Shopify stock.
Ultimately, Shopify stock, currently trading around 28 times its sales, could be valued for perfection. By comparison, two of its peers: Etsy (NASDAQ:ETSY) and Wix (NASDAQ:WIX), trade at seven times and eight times their sales, respectively.
SHOP is due to report its Q4 results in February. Anything other than A+ results will do a number on Shopify’s share price. In the process, the march of SHOP stock to $500 will be slowed.
The Bottom Line on Shopify Stock
SHOP stock has rallied in the last month after it reported its total GMV for the all-important Thanksgiving weekend. While we don’t know if the strong numbers will translate into its merchants doing better than last year, it’s hard to imagine its Q4 results being a disaster.
For that reason, I’m not too concerned about a negative earnings surprise in February.
Although SHOP stock is expensive, as I said in November, it’s worth holding for the long-term. Therefore, those who don’t already own the shares should invest 50% of what they ultimately want to put in SHOP stock now and wait for a correction below $350 to buy some more shares.
SHOP stock can hit $500 by Apr. 1, but not without considerable volatility between now and then.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.