Shopify Inc. (SHOP) has experienced a tremendous run – rising nearly 70% since the beginning of the year. While the stock may be fundamentally overvalued, analysts remain bullish on the stock and recent takeover rumors have sent shares to fresh all-time highs.
The big question for traders is whether the stock will breakout or breakdown from these levels, which have reached a critical tipping point from a technical standpoint.
Shopify is trading at the low end of its price channel and on the cusp of either a breakout higher or a double top that could spell downside ahead. The relative strength index (RSI) has reached overbought levels of nearly 70.0, but the moving average convergence-divergence (MACD) shows a potential bullish crossover in the works. These conflicting signals that been a key concern for traders in the stock as volume remains relatively low.
Analysts sentiment is overwhelmingly bullish with 18 buy ratings, six hold ratings, and no sell ratings. Recently, National Bank initiated coverage of the stock with an outperform rating and $80.00 price target while BTIG reiterated their buy rating with a $75.00 price target. These analysts attribute the meteoric rise in price to market traction rather than irrational exuberance; however, many valuation ratios remain high compared to its peers.
The company is expected to report first-quarter earnings on May 2, 2017, which will be an important date for traders to watch. During the fourth quarter, the company reported revenue that increased 85.5% and even earnings at $0.00, beating analyst estimates on both fronts. Shares responded by increasing nearly 3% and continuing to rally in the aftermath. Another earnings beat in early-May could help spark a rally higher moving into the second half of 2017.
From a technical standpoint, traders may want to consider keeping tight stop losses in place below the lower trend line support as a breakdown from these levels could spark a wider sell-off to $65.00 where there is trend line support and the 50-day moving average.
Charts courtesy of StockCharts.com. Author may hold position in stocks mentioned via index funds.