Investors had plenty chances to exit Shopify stock well before this year's crash if only they had spotted sell signals. That's why Shopify is the IBD Stock Of The Day, as an example of how to use sell rules.
Started in 2006, Shopify sets up e-commerce websites for small and medium-size businesses. SHOP stock partners with others to handle digital payments and shipping.
Canada-based Shopify has thrived during the coronavirus pandemic as brick-and-mortar businesses pivoted to online sales. But SHOP stock has been in decline since late November amid concerns about slowing e-commerce growth.
On the stock market today, Shopify stock tumbled 4.9% to close at 892.39. SHOP stock has plunged more than 35% in 2022, making it one of the biggest losers in the IBD Computer-Software Enterprise group.
Shopify stock hit an all-time high 1,762.92 on Nov. 19.
Shopify Stock: Growth Slowed In September Quarter
About three weeks before Shopify stock hit the all-time high, the company reported third-quarter earnings, revenue and gross merchandise volume that missed views. But investors shrugged off the news and focused on new product launches and geographic expansion.
From a technical view, Shopify stock presented a clear sell signal on Nov. 30, when it fell 8% below its 1,650.10 entry point. In addition, SHOP stock the week ended Dec. 3 broke below its 10-week moving average line, a key support level.
On a weekly chart, Shopify stock fell below its 40-week, or 200-day moving average, the week of Dec. 17. A second close below the 40-week line occurred in early January.
On a fundamental basis, there had been other warning signs. One sign was several high-level executive departures.
Shopify's Distribution Network
In addition, a key project of Shopify — building a U.S. distribution network to store and ship products for its merchant customers — seemed not to be gaining much traction. The Shopify Fulfillment Network was expected to scale up by the end of 2021 or early 2022.
To support the distribution network, Shopify acquired 6 River Systems, a maker of autonomous warehouse robots, for $450 million, in late 2019.
While Shopify holds several billion dollars in cash and securities on its balance sheet, it has not made other acquisitions.
Shopify stock, which went public in 2015, uses a dual-class share structure that gives Chief Executive Tobias Lutke and other insiders super-voting rights.
Shopify Technical Ratings Lag
As you might expect, the technical ratings of SHOP stock are poor.
Shopify's Relative Strength Rating is 19 out of a best-possible 99, according to IBD Stock Checkup. The best stocks tend to have an RS rating of 80 or better.
SHOP stock owns an Accumulation/Distribution Rating of D-minus. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
Shopify stock holds an IBD Composite Rating of 51 out of a best-possible 99.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
SHOP Stock Forged Partnerships
One bright spot for Shopify has been partnerships. Shopify is an investor in privately held payment processing company Stripe, whose $600 million funding round in March 2021 gave it a $96 billion valuation. Stripe competes with Block, PayPal Holdings and others.
Also, Shopify has made deals with Alphabet's Google, Facebook, Tik Tok and Pinterest.
Shopify in June 2020 forged a deal with Amazon.com rival Walmart. Shopify's merchant customers sell their products at Walmart's website.
In mid-January this year, Shopify said it will partner with JD.com to make it easier for U.S. companies to sell consumer products in China. Merchants belonging to Shopify's network will be able to list products on JD.com's website.
Yet another partnership is with consumer lending firm Affirm Holdings. Affirm provides buy now, pay later installment-plan services for online shoppers. At checkout, consumers split payments into three or four equal installments that are interest-free.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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