Shopify (NYSE:SHOP) is not a household name, but it should be, given the increasing share of sales that are happening via e-commerce. Shopify provides other companies with services and tools needed to run a successful online business. Now, I believe Shopify is a company worth considering at these levels.
For the third quarter, Shopify reported revenue of $390.6 million, a 45% increase compared to 2018. Even with that high pace of growth shares fell nearly 4% the day of the report because of a wider-than-expected loss. But this loss was due to a one-time tax expense and research costs.
Another point that investors missed is the fact that Shopify has a very strong balance sheet. As of the end of the third quarter, Shopify had nearly $2.7 billion in cash and liabilities totaling only $369 million. A strong balance sheet will allow SHOP to continue making acquisitions.
Shopify’s Acquisitions
In September, Shopify announced the $450 million purchase of 6 River Systems, which provides warehouse fulfillment solutions. If you go to the 6 River Systems website, you can see the warehouse solutions in action. Going forward, this will help Shopify meet the shipping needs of merchants.
On the conference call, CFO Amy Shapero noted that in the fourth quarter there would be some added expenses from the 6 River Systems acquisition. In addition, she also noted there would be little impact on the revenue side in the quarter from the deal. Therefore, the fourth quarter is shaping up to be similar to the third quarter.
Technical Outlook
Source: ThinkorSwim
The technical chart for Shopify stock is one of the most appealing charts I have seen in awhile for a high-growth company. The first appealing aspect is the fact that shares have pulled back from their meteoric rise and have retraced nearly 50% of the move this year. That 50% level around $272 is an important level, given it was also resistance back in May.
The second appealing aspect is the multiple divergences occurring between the stock price and the moving average convergence/divergence and the relative strength index. The orange line shows over the last two months the share price of Shopify has been trending lower. Over that same period, the MACD and RSI (white lines) have both been trending higher.
When a divergence like this occurs, it is a good signal that the prevailing trend could possibly change. This means there is potential for SHOP stock to reverse the downtrend.
Bottom Line on SHOP Stock
The bottom line is Shopify is a high-growth company that has a long runway for continued success. With roughly 10% of retail sales conducted online, there is vast potential for Shopify to continue growing at a substantial pace. Given the high growth, appealing technical outlook and strong balance sheet, I believe Shopify is worthy of consideration.
As of this writing, Brad Kenagy did not hold a position in any of the aforementioned securities.
