- SHOP shed over 2.5% on Wednesday amid a souring market's mood.
- Shopify remained under pressure as stocks suffered from FOMC's Minutes.
- Shopify stock is feeling the brunt of the sell-off in growth stocks.
Update, January 6: Shopify (SHOP) tumbled for the fourth straight day on Wednesday, losing another 2.61%. SHOP stock price reached the lowest levels in eight months at 1,173.75 before recovering to $1,190.01 at the close. The tech sell-off on Wall Street amid expectations of aggressive tightening by the Fed, following the FOMC minutes release, exacerbated the pain in Shopify shares. Among other news, Shopify filed a patent that reflects its growing interest in in-person retail as its rivalry with Amazon heats up.
Shopify (SHOP) surprised many of its backers when it closed down an unusual 10.4% on Tuesday, January 4. The stock had been trending lower since November 19 when it reached an all-time high just shy of $1,763. Tuesday's drop seems macroeconomic in nature and unrelated to company fundamentals, but there are several chart indicators that lead FXStreet to believe there is more contraction to come.
Shopify Stock News: higher interest rates a bad environment for growth
The reason for consensus being that macroeconomic issues are to blame is that a number of other high-multiple growth stocks also dropped harshly during Tuesday's session. Leading Buy Now Pay Later provider Affirm Holdings (AFRM) dropped more than 10% as well, software provider HubSpot (HUBS) contracted more than 7%, and Asian ecommerce darling Sea Limited corrected more than 11%. In fact, nearly all popular US growth stocks fell by the wayside.
Although it is impossible to be certain at this point that the Federal Reserve is to blame, the growth sell-off narrative hinges on the Fed raising interest rates in 2022, something that it has hinted at in recent months. With higher rates comes a flight to safety and more competitive coupon payments from bonds. Additionally, the higher interest rates supply a higher discount rate to the formulas used to value growth stocks. This makes value stocks that already produce cash flows appear much more attractive that profitless growth stocks that may be many quarters off from dependable cash flows.
Bloomberg surveyed more than 100 institutional investors in December about prospects for 2022. By a wide margin, value stocks beat out both growth stocks and tech stocks as market segments that the investors thought would outperform.
With the Fed moving toward less accomodative policy throughout the next 12 to 18 months, investors are expecting that these growth names will suffer and that taking profits now may be the safest option. With a price/sales ratio at 44, SHOP is a poster child for expensive growth stocks. The extremely high profit margin of 81% could shelter its fall, but in an environment where growth stocks are less attractive, investors should expect further multiple compression.
SHOP key statistics
Market Cap | $183 billion |
Price/Earnings | 54 |
Price/Sales | 44 |
Price/Book | 16 |
Enterprise Value | $177 billion |
Operating Margin | 11% |
Profit Margin |
81% |
52-week high | $1,762.92 |
52-week low | $1,005.14 |
Short Interest | 3% |
Average Wall Street Rating and Price Target | Buy, $2,093.32 |
Shopify Stock Forecast: better entries to come
SHOP shares dropped below the zero lower bound of the daily chart's Fibonacci retracement graph on Tuesday. Though SHOP price respected several Fibo levels since the all-time high on November 19, including the 50%, 38.2% and 23.6% Fibos, Tuesday's plunge ripped right through the lower bound. This is the first sign that this contraction should continue. Additionally, the signal line fell below the MACD line on the Moving Average Convergence Diverence indicator.
SHOP 1-day chart
Secondly, the daily chart shows that SHOP stock price dropped decisively below the range support at $1,285.90. This signifies that support is yet to be found.
SHOP 1-day chart
With a drawdown the size of yesterday's, it would be unusual if the market just forgets about it anytime soon. Instead, a 10%-plus pullback unrelated to the company normally means more pain lies ahead. Instead of jumping in at the current price above $1,200, wait until SHOP falls into the demand zone between $1,005 and $1,031. This region supported the SHOP share price on three separate occasions in March through May of this year, and it seems appetizing for a further long in the coming months.
SHOP 1-day chart
Previous updates
Update: Shopify (SHOP) extended its decline on Wednesday, shedding over 3% and currently trading at $1,182.35 per share. Wall Street was enjoying a positive momentum, exception made by tech shares, but then came the Fed. The US central bank unveiled the Minutes of its latest meeting, which put in the table further tightening and even further, a reduction of the balance sheet. At the same time, government bond yields soared, with that on the 10-year Treasury note reaching the critical 1.70% threshold.
Like this article? Help us with some feedback by answering this survey:
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD trades weak below 1.0800 amid Good Friday lull, ahead of US PCE
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair keenly awaits the US PCE inflation data and Fed Chair Powell's speech for fresh hints on next week's price action.
GBP/USD holds steady above 1.2600 as markets stay calm on Good Friday
GBP/USD trades sideways above 1.2600 amid a typical Good Friday trading lull. A broadly firmer US Dollar could keep any upside attempts limited in the pair ahead of the US PCE inflation data and Fed Chair Powell's appearance.
Gold price sits at all-time highs above $2,230, US PCE eyed
Gold price hit all-time highs at $2,236 on Thursday to finish Q1 2024 with a bang. Most major world markets, including the US are closed due to Holy Friday, leaving volatility around Gold price highly subdued. US PCE inflation and Powell are awaited.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.