- Shopify (SHOP) stock has collapsed under heavy and persistent selling.
- It is near the pandemic base, so it should find support.
- Smart money should be looking for opportunities at these cheaper prices.
Source: Burdun Iliya / Shutterstock.com
The stock market has been correcting for weeks. Some sectors have been under pressure much longer than that. This includes Shopify (NYSE:SHOP) stock, which up until last fall it was a rising star. Since then it has lost more than 80% of its value in just six months. That’s tremendous devastation that warrants investigation into the opportunity in its remnants.
The arguments today will have to work within the confines of the entire stock market. In other words, any bullish expectations from SHOP stock will likely need a rising market. At the very least the indices cannot be falling incessantly, so they will need to first stabilize. So far this has not happened because of a situation where we are dying by a thousand cuts.
The price action Monday was bullish on Wall Street, so that was a good step forward. Then immediately after the close, things went sour because of a hideous pre-announcement from Snap (NYSE:SNAP). That stock fell 33% and took the whole sector with it. This will likely bleed into tech stocks and deflate the bulls’ sails for a few days.
SHOP Stock Is Down Because of Irrational Exuberance in 2020
Source: Charts by TradingView
Out of the pandemic, Wall Street morphed into a new kind of neighborhood. The Apes moved in, well into their headquarters on Reddit and changed everything. Stocks soared to high heaven and without much scrutiny. Good stocks like Shopify rose too fast, while other questionable stocks also rallied. There wasn’t a bear in sight, and the trip down is merely the flip side of that.
What crashed up is coming crashing down now. SHOP stock also deserved to give back some of its green, but has taken a real beating. The fall in sympathy to the iffy pandemic stocks went further than it should. Shopify has delivered enough growth to warrant a pass. This is not an opinion but a verifiable fact from its financials.
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Eventually, investors will realize that they threw away the good with the bad. According to Yahoo Finance Wall Street experts agree. Their average price target for SHOP stock is 155% above current value. Clearly there’s something wrong with this picture, and something’s going to have to happen.
Sadly this brings about the risk of bearish headlines. Most often the experts capitulate and downgrade their expectations. More often than not this has a negative effect on the stock prices. Therefore, a cheap Shopify stock can still fall further. If stocks traded in a vacuum, I would have high confidence in this one. But for now, having a bit of skepticism is a good thing.
Shopify Is Worth Owning
Shopify’s fundamental metrics are exceptional. The company displayed incredible growth with an expanding bottom line. Valuation is not the concern, because it’s more about the price action. Its customers love it and Wall Street already gives it kudos. However, what it lacks is a bit of benefit of the doubt. Eventually, it will earn that, so it is worth building positions now.
Because of the bearish Federal Reserve, Ukraine concerns and lack of risk appetite investors should not go all in. Pacing entry points is an easy way to mitigate risk over time. On paper, buying SHOP stock is not likely a big financial mistake. But nailing the perfect price for it is not an art investors should try to master. I know I will miss the perfect buy, so I try to hit as many good opportunities as possible.
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.
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