Shopify stock, today’s IBD 50 Stocks To Watch pick, is near a buy point after staging a nearly 200% run last year.
The Canada-based company was started by snowboarding enthusiasts a decade ago. It started as an online snowboard shop, moving into e-commerce software when the founders couldn’t find what they were looking for — a platform to both sell goods and grow their brand.
Shopify now sets up e-commerce websites for small businesses, and partners with others to handle digital payments and shipping. It’s also building a U.S. distribution network to store and ship products for its merchant customers.
Shopify stock wasn’t spared during the coronavirus crash, but it’s made a strong recovery. Shares have gone up as much as 37% this year, nearly triple the S&P 500’s return. Last year, the software maker soared 185% vs. a 16% gain for the benchmark index.
Stocks To Watch: Strong Ratings, Too
In addition to strong price gains, Shopify boasts solid fundamentals and technicals.
IBD Stock Checkup assigns Shopify a 95 Composite Rating, which gives investors a quick way to gauge a stock’s key growth traits. That puts it among the top stocks to watch in the 99-stock enterprise software group, which includes DocuSign (DOCU) and Salesforce.com (CRM).
A 99 Earnings Per Share Rating, part of the overall composite score, also places Shopify among the group’s leaders. That reflects a 165% five-year compound earnings growth rate. The software maker turned its first profit in 2017. Analysts expect EPS to increase 9% this year and 12% the next.
Shopify’s earnings boomed in 2020 as merchants rushed to set up online storefronts, but analysts expect earnings and revenue growth to slow markedly in the back half of 2021 as economies reopen. Sales growth has ranged between 47% and 112% in the past eight years. The company has not provided 2021 guidance.
On the technical front, an 85 Relative Strength Rating puts Shopify in the top 14% of all stocks. Its relative strength line, which compares a stock’s performance vs. the S&P 500, is close to a new high. That’s a bullish sign.
Mutual Funds Like Shopify Stock
An A- Accumulation/Distribution Rating points to more recent net buying than selling by mutual funds. Highly regarded fund shareholders in Q1 include Fidelity Contrafund (FCNTX), Janus Henderson Forty (JDCAX) and Wells Fargo Growth (SGRAX).
Shopify stock is trying to break out past a 1,499.85 buy point of a four-month cup base, according to MarketSmith chart analysis. It has advanced in 11 of the past 12 sessions. The stock hit a new high Monday but closed below the entry. The buy range goes up to 1,574.85.
A caveat: Shopify has been in a long uptrend and the base is late stage, which increases the risk of a failed breakout. It hasn’t shown signs of slowing down yet, but that’s something to be aware of. Growth stocks tend to make their biggest runs out of early-stage bases.
Follow Nancy Gondo on Twitter at @IBD_NGondo
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