Shopify, Inc. (SHOP) has been a solid performer over the past year, rising over 112% so far this year and 200% over the past 52 weeks. This strong performance has been driven by a string of better-than-expected earnings reports showing strong revenue and user growth. For instance, the company’s first-quarter financial results showed revenues soaring 75.2% to $127.38 million – beating consensus estimates by $5.81 million – and a net loss of just $0.04 per share.
Despite the rapid run-up, most analysts remain bullish on the stock with 18 buys, six holds, and no sell ratings, as of the first quarter. Most analysts agree that the strong stock price gains are attributable to the product striking a balance with the market rather than irrational exuberance. This is a great sign for both long-term investors and short- to medium-term traders looking to capitalize on a very strong trend higher.
On Friday, the company’s stock moved sharply lower to critical support levels at the bottom of its price channel. A breakdown from these levels could lead to a technically-driven sell-off in the stock, but a rebound could create an attractive buying opportunity with the next major resistance at $100.22 and then $108.58. The sell-off also helped moderate the relative strength index (RSI) to neutral levels of 52.19 rather than overbought levels.
Traders should keep a close eye on the stock next week for signs of a breakdown or rebound. The long-term trend suggests a bullish bias, but the moving average convergence-divergence (MACD) shows a bearish divergence from the stock price that could be a sign of a reversal. The good news is that the fundamentals still appear to support a bull market, which could make the recent downturn an attractive buying opportunity.
Charts courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except in passively-managed index funds.