This e-commerce stock has formed an inverse 'head-and-shoulder' pattern signaling more gains ahead
Shopify is the one-stop shop to help small- and medium-size businesses transact online. There was an explosion in new online business formations during Covid, and the number of new monthly business applications has maintained. However, the company is starting to diversify by onboarding larger brands such as Reebok, Overstock and Barnes & Noble, which will stabilize revenue streams. We just added SHOP to our Active Opportunities portfolio on Monday and see upside ahead. Starting on the weekly chart we see a sharp decline following the pandemic as entrepreneurs rushed to open their virtual stores as we were forced home. Since then, the stock has recovered in a rhythmical uptrend defined by the dashed parallel trend channel. The all-time high of $176 could be in reach. Moving down to the daily chart, we see an inverse head and shoulder pattern forming (3 curved blue lines) setting up a breakout of the downtrend resistance line. There was an accompanying explosion in volume with 2, 30M+ share days compared to the average daily volume of 12.8 million. This was driven by an earnings report and a surprise announcement that SHOP would be added to the Nasdaq-100 index. SHOP reported earnings last week with 26.8% revenue growth vs same quarter last year. Non-GAAP earnings showed 25% growth from the year-earlier period. On a GAAP basis, though, the company reported a loss. Diving into that a bit, the company reported that it lost about $1.04 billion in unspecified equity investments and does not reflect Shopify's core business operations. Watching the price action, the stock opened down on May 8 following earnings and then closed in the top end of the range. Friday was an inside day (vs Thursday) and following the news of a U.S.-China trade deal, shares surged more than 10%. The company has minimal exposure to the Chinese tariff situation, but the merchants on the platform certainly do. I didn't love buying a stock on such a big up day, but I think the resistance level was $100.60, which is now broken acting as support. Let's see if the stock can move higher, though I fully acknowledge the hefty forward valuation the company faces. Looking back up at the weekly chart on the lower panel, we see steady top line revenue growth figures above 20% since 2019 and going forward into 2026. EPS is expected to dip in 2025 to 34 cents (this is GAAP earnings) but re-accelerate in 2026. Non-GAAP 2026 earnings are expected at $1.41, equating to 76 times forward earnings. The company needs to grow into this valuation with increased earnings expectations by expanding their multiple offerings. -Todd Gordon, founder of Inside Edge Capital, LLC DISCLOSURES: Gordon owns SHOP in his wealth management company Inside Edge Capital, LLC. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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