- Shopify (SHOP) stock has rewarded its investors well, hitting an all-time high in November 2021.
- Recently, though, shares of SHOP stock have fallen out of favor.
- However, the headwinds are likely temporary — thus keeping it as a stock to buy right now.
For about three years, headlines have been playing too big of a role in investments on Wall Street. It’s like investors forgot how to trade without them. With that in mind, the chatter on Monday was that Shopify (NYSE:SHOP) is planning a 10-for-1 stock split. The response to it was underwhelming, though, because I expected more from SHOP stock. I’ve seen it move 5% on normal days without headlines. So, a slight uptick on a typically catalytic headline is disappointing. It could even indicate weakness, even, where buyers have run out of steam.
However, this is a temporary situation because the long-term prognosis for SHOP stock is excellent. I don’t need a stock split to see the great opportunity that lies within it. Shopify is arguably the closest replica to Amazon (NASDAQ:AMZN). If that’s the case, then there isn’t much worry with regard to its success. Therefore, by definition, major corrections in SHOP stock should present buying opportunities for investors.
It’s not all hype, because there is proof in its financial pudding. According to Yahoo Finance, Shopify has delivered explosive growth. Specifically, it has averaged 66% yearly revenue growth since the end of 2018. Moreover, statistically, it has not created any bloat in the stock price. In fact, I would consider it cheap, given the speed with which it’s growing.
So, where do we go from here with SHOP stock? Let’s dive in and take a closer look.
| SHOP | Shopify | $619.16 |
SHOP Stock Is in Great Hands
Critics can’t complain about its price-earnings (P/E) ratio of 26.3, or its price-sales (P/S) ratio of 16.7. On both counts, SHOP is competitive with all other hypergrowth tech companies. Tesla (NASDAQ:TSLA), for example, has a P/S of 21.5, and Amazon’s P/E is 47.7.
In turn, Shopify’s management can be proud of being in such a strong company. The least we can say is that there aren’t any flagrant fouls playing out.
Meanwhile, the stock price action has been more negative than positive since it peaked in November. From the high to the low, SHOP stock lost nearly 70% of its value. It is still barely above that mark, so there’s plenty of upside potential in the future. But for now, it needs the overall market to improve its sentiment.
The extrinsic risks are weighing heavy on all stocks, so rallies are too short to build positive trends. As a result, SHOP stock has established a nasty descending channel with lower highs.
The bottom is a process and the first step is to stop making new lows. This may have started mid-March from $510 per share. So if this continues, then the bulls may be able to breach that $780 level.
Conversely, it is only fair to note the presence of tremendous risk below. If for whatever reason Shopify stock falls below $500, the downside scenario could be pretty ugly. In fact so ugly that makes it almost makes the scenario unlikely to happen. However, just in case, I would leave some dry powder to pounce on that opportunity if and when it comes.
Overall, much of the froth has seeped out of the novel coronavirus pandemic rally. So having another large leg lower unfold would present a gift to repeat that entry opportunity — especially for those who intend on holding it for the long term.
Collectively, management has already earned enough kudos on Wall Street. Therefore, I would give SHOP stock’s success a high degree of confidence. Meanwhile, I restate my caution on every trade this month: Investors would do well to not take full positions at once.
On the date of publication, Nicolas Chahine held USDC, SOL and ETH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
