A year-to-date gain of roughly 30% for shares of Shopify Inc. (SHOP) is likely a result of strong institutional demand for the shares. The main factor that drives shares is none other than supply and demand – and Shopify stock is clearly in demand. Large institutional buying suggests that smart traders know the growth story of Shopify all too well and are betting that the company has the winning recipe to reward shareholders. Wagering on leading stocks with growing sales, great technicals and bullish institutional activity can be a wise game plan for long-term investors.

Being that Shopify is a leader in the fast growing e-commerce market, those who are lifting the stock to all-time highs in a shaky tape likely believe that the stock is positioned for more upside. What's even more impressive is that, when you look at the market's strong recovery from Feb. 8, it's nothing compared to Shopify's move in the same period (+5.2% for the S&P 500 vs. +20.4% for Shopify). This makes a very strong case for long-term bullish investors. In the view of Macro Analytics for Professionals (MAP), the strongest indicator of positive price momentum is obtained by measuring potential institutional accumulation. Since May 2017, Shopify has logged 18 of these rare signals. This indicates that demand for shares is strong.

Notably, in 2018, MAP has flagged six potential institutional buy signals in Shopify shares, which gives us the expectation that this stock will continue to head higher. We want to put the odds in our favor and bet alongside big investors who have a favorable outlook on the company. In the chart below, Shopify stock broke out of congestion to reach all-time highs in a jittery market. Additionally, the stock is accompanied by institutional accumulation.



Courtesy of TradingView.

MAP's process focuses on identifying companies with healthy fundamentals accompanied by outsized, unusual institutional activity to try and measure potential accumulation/distribution at the single-stock level. By studying these data points, we can hypothesize which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.

Many of the top performing stocks over the years have received persistent institutional support, telling a narrative of where big firms may see opportunity. A company like Shopify has one of the best growth stories in years.

When deciding on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of these for Shopify are as follows:

  • Year-to-date outperformance vs. the overall market: +~29% vs. SPDR S&P 500 ETF (SPY)
  • Year-to-date outperformance vs. the sector: +~26.6% vs. Technology Select SPDR ETF (XLK)
  • And most importantly, institutional accumulation signals

On top of a great technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. The areas you want to consider important for continual institutional support are:

  • One-year EPS growth rate: +385%
  • One-year sales growth rate: +73%
  • Three year sales growth rate: +86%

Shopify checks the box on impressive technicals and solid fundamentals while continuing to gain institutional momentum, which may point to further price appreciation.

Taking a look at the overall picture of the institutional accumulation/distribution activity that we monitor for the broad market, signs recently show that buying is picking up from the recent market sell-off. With the market staging a comeback being led by the tech sector, we want to bet alongside strong stocks we believe institutions are buying. We feel that Shopify has the high growth and technicals that are attractive for those looking for stock appreciation. Shopify stock has been gaining rapidly over the past year, with accumulation signals reinforcing the move. All of this points to the odds being favorable for the stock.

The Bottom Line

Shopify represents a potential buying opportunity for the long-term growth investor. Given the large number of institutional accumulation signals and outperformance vs. the market year to date, this growth machine should be a consideration for institutional investors.

To learn more about MAP's institutional signals, please visit our "About Us" page.

Disclosure: The author holds no position in Shopify stock at the time of publication.

Investment Research Disclaimer.

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