Shopify (SHOP) is the go-to e-commerce platform for small- to medium-sized businesses that operates two main segments: a subscription solution that allows merchants to transact business on a variety of platforms including their own, as well as add-on products that help facilitate e-commerce. The stock was formerly a pandemic darling and like many caught up in the stay-at-home craze, the share price correction that followed was nothing short of devastating with a 86% decline. The stock stabilized and has mounted a charge to challenge the pandemic highs and is at a key technical decision point. The weekly chart shows SHOP testing the last two retracement ratios of 61.8% and 78.6% of the post-pandemic decline. The 61.8% retracement at $81.81 is a widely known retracement level that was tested in Jan ’24, held resistance through the summer, price stabilized to mount an attack on the 78.6% retracement at current levels around $115.00. I refer to this level as the ‘ retracement of last resort’ as the tendency for a market that does not reverse the trend at this retracement often continues in the direction of the trend to go and test the former all-time highs of $176.29. The stock was recently upgraded by Loop Ventures from $110 to $140 citing strategic implementation of artificial intelligence for merchants (end users), but also various internal operations, which is expected to boost margins and free cash flow. I previously held this stock in our growth portfolio at Inside Edge Capital, but cut the position in June of this year and have not yet re-engaged. Moving down to the daily chart below Q2 and Q3 earnings are labeled that saw significant gaps higher as the stock more than doubled from the August lows. The most recent Q3 earnings report was a huge beat. The earnings growth on a year-over-year basis has been astounding with EPS in all of 2022 of just $0.04, up to $0.74 in 2023, expectations for $1.25 this year that are on track, and then up to $1.50 in 2025. The growth rate is massive, but so is the forward valuation of 76 times 2025 earnings, which is concerning. Personally, I do not yet own this stock and am watching to see if the momentum from the recent earnings report and the upgrade can carry the stock up and through the 78.6% retracement of last resort. If the stock continues to hold above $110 I intend to try a momentum breakout-type strategy that sees price carry up through $115 and move to and through the $140 target and ultimately re-test the all-time highs. Risk management however will be important in this highly volatile, high valuation name. Should price start to break below back towards the low post-earnings reaction at $102, I would close the position in expectation of the gap post-Q3 earnings to close and wait for the stock to stabilize before mounting another attack. -Todd Gordon, Founder of Inside Edge Capital , LLC DISCLOSURES: (Gordon does now own SHOP in his wealth management company Inside Edge Capital, LLC. Charts shown are MotiveWave.) 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.
