CA - Shopify: Recent Surge Was Fully Digested - Here's Why I Bought Even More

2023-10-13 14:30:39 ET

Summary

• Shopify stock's recent surge following its integration with Amazon's Buy with Prime has been fully digested, presenting another buying opportunity.
• The upcoming third-quarter earnings announcement and Investor Day presentation may provide insights into Shopify's growth strategies and generative AI opportunities.
• Despite its recent pullback, Shopify's strong growth potential and robust momentum suggest buyers are expected to defend its premium valuation.
• I argue why I observed robust buying support at SHOP's $50 zone, suggesting another golden opportunity in buying the steep plunge.

In my previous update on Shopify Inc. ( SHOP ), I upgraded the stock, anticipating a recovery, following my May 2023 caution . That upgrade was timely, as SHOP surged to its August highs, lifted by the surprise announcement of a deeper integration with Amazon's ( AMZN ) Buy with Prime.

However, that surge proved to be an astute selling opportunity for earlier dip buyers, as SHOP's upward momentum failed again below the $70 zone. SHOP holders also experienced significant selling resistance at the $70 level in mid-July before falling toward its August lows.

With SHOP falling below its August lows recently, the initial gains following the Buy with Prime announcement have been fully digested. As such, I assessed it's timely for me to update SHOP holders on whether the recent pullback is reasonable for investors to add exposure.

Shopify is scheduled to announce its third-quarter or its FQ3 earnings release on November 2. The company has also announced an Investor Day presentation in early December, as Shopify provides updates on its "global unified commerce platform, product roadmap, expansion strategies, and market opportunities."

I encourage investors to tune in, as founder and CEO Tobi Lütke is expected to deliver the keynote. I believe investors will likely be keen to assess the generative AI opportunities underpinning Shopify's growth strategies following the divestment of its logistics platform.

While Shopify's partnership with Amazon attracted significant interest initially, the rapid digestion of gains from its August surge indicated that investors weren't sure whether there could be a significant revenue uplift from the partnership. Meanwhile, the partnership is expected to benefit Amazon and Shopify merchants, as the Buy with Prime checkout has been seamlessly integrated into Shopify's platform.

Notably, with its merchants retaining customer data, Amazon's role is expected to be limited to a fulfillment provider. Furthermore, Shopify Pay is anticipated to continue playing a pivotal role, even though customers can use Amazon's payment platform. Despite that, I believe the strength of Shopify's end-to-end tech and payment platform should maintain its appeal to merchants and customers while leveraging Amazon's fulfillment capabilities.

However, SHOP is no longer undervalued compared to the lows in late 2022. It has also gained more than 100% over the past year as it recovered remarkably from its pandemic bust.

Despite that, its best-in-class growth potential ("A+" growth grade) suggests that buyers are expected to defend its "D+" premium valuation. Moreover, SHOP's momentum has remained robust ("A" grade), indicating buyers are expected to buy significant dips.

With that in mind, let me help SHOP holders determine whether the recent steep pullback offers another opportunity to get on the ride as the gains from the Buy with Prime announcement dissipated.

As seen above, SHOP buyers returned two weeks ago, as they robustly attempted to hold the $50 support zone. That zone was defended at its previous plunge toward its August lows. As such, I urge investors to pay close attention to the buying sentiments at the current levels.

SHOP's 50-week moving average or MA (blue line) is also expected to further boost buying support, which could attract momentum buyers to return, helping to lift its buying intensity.

As such, I assessed the digestion of gains from SHOP's August highs has opened up another buying opportunity for investors who missed buying close to its $50 support level.

Rating: Maintain Buy.

Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Please always apply independent thinking and note that the rating is not intended to time a specific entry/exit at the point of writing unless otherwise specified.

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