Shopify Stock Bears Are Betting on the Losing Side
I wrote two articles today, one about IBM (NYSE:IBM) and the second about Shopify (NYSE:SHOP) stock. My opinion on both could not be any more different. I have very little faith in the turnaround efforts of IBM. On the other hand I have complete faith in the brilliance behind the SHOP stock. Shopify’s growth rates are extremely impressive. It’s a stock to bet on.
Total revenue grew 20 times since 2015 — from $205 million to over $4 billion in the trailing 12 months — and I challenge any critic to find fault in that. This probably explains why the stock price has had such a sharp ascent.
What’s also impressive is that the company’s trailing-12-months net income rate is over $3 billion. The 2020 global shutdown likely boosted the growth rates artificially. Regardless, I bet that they will make the best of it and carry the momentum forward.
This is not a cheap stock, with its 46 price-to-sales ratio. However, it does not need to be cheap, because bargain budgets couldn’t possibly deliver this rapid growth. They are truly following in Amazon‘s (NASDAQ:AMZN) footsteps. These are big shoes to fill because Amazon is one of a kind.
SHOP Stock Bullish Thesis Is Bullet-Proof
Sometimes the bullish thesis in a stock is so obvious that it should have absolutely no sellers. However Wall Street likes to trade around the edges, and there are always hopeful haters. In the long term, the charts suggest that the buyers are in complete control of the price action. SHOP stock dips have had buyers lurking at every significant support level. Until that changes, the bears should not expect long negative stents.
If the stock market is higher in the future, then so is SHOP stock. However, in the past 30 days it has corrected almost 10%. Luckily this came from a recent burst into an all-time-high level. This year alone it already broke into new highs twice, and both times fell back into the breakout lines. Nevertheless, this choppy price action has an ascending trend.
Therefore the bulls are still in complete control even at shorter time frame charts. There is immediate support near $1,400 per share. There is even stronger support $100 lower. If for whatever reason that fails, then there could be a dash towards $1,100. While that is not my forecast, a crash on Wall Street could make that happen. Consequently, Investors who want to buy shares now should not go all in. Smart money near all-time highs always leaves dry powder on the sidelines.
Stock Support vs Extrinsic Risks
Shopify stock consolidated sideways for months in the earlier part of this year. Therefore if they fall back into that area, it will act as support. Expecting lower prices is unreasonable without a Black Swan that breaks the markets in a big way.
We do have extrinsic risk from the omicron version of Covid-19 just to name one. Also recently we’ve see the U.S. Fed chair Powell balk at inflation persistence. Then there is also the global shutdown, but if it happens again it will probably give SHOP a booster shot. Businesses will then once again rush to get online even faster.
Regardless, the company’s management is strong and has gained the trust of Wall Street. Having a good reputation helps the stock a lot. Anyone shorting SHOP stock on a fundamental basis is taking a very-low-odds bet. It is expanding its services to find new income streams, much like Amazon did. This is especially true when they already have a cash cow going. Betting against them is an unrealistic expectation.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
