Warning! Shopify Inc. (TSX:SHOP) Is Primed for a Pullback

Shopify Inc. (TSX:SHOP)(NYSE:SHOP) has been on a tear as of late. Long term, the company still belongs in your portfolio, but it is getting overextended.

| More on:
The Motley Fool

What a run it’s been. Shopify Inc. (TSX:SHOP)(NYSE:SHOP) is one of Canada’s most successful IPOs of the past few decades. Since it began trading on the TSX in mid-2015, the company has returned 515%!

Canada’s tech darling is showing no signs of slowing down. After a slight blip in late March and early April, the company has skyrocketed to new 52-week highs. Year to date, the company’s share price has returned almost 63%, far outpacing the TSX Index and many of its growth peers.

Has the company’s share price gotten ahead of itself? Let’s take a look.

Analysts’ estimates

Analysts are by no means perfect market predictors, but you can get a good sense of a company’s valuation based on analysts’ estimates. As of today’s price of $215.04, Shopify is trading above analysts’ price targets. On average, analysts have a one-year price target of $187.53, which implies 13% downside.

What is the most optimistic price target? Currently, the highest target is $219.30, only slightly above its current share price. The company appears to be fairly valued based on these estimates. This is also reflected in the analysts’ ratings. Despite 11 buys, there are also seven holds.


One of the most popular short-term momentum indicators is the 14-day Relative Strength Index (RSI). The RSI measures a stock’s price momentum and is used to identify when stocks are either overbought or oversold. An RSI above 70 indicates that the stock is overbought, while an rating below 30 indicates that the stock is oversold.

According to the RSI, Shopify’s rating of 82.62 indicates that the company is firmly in overbought territory. What does this mean? Investors could expect short-term downward pressure on the stock.

End of story? Not quite.

Regardless of which Simple Moving Average (SMA) you pick, all signs still point to bullish! The SMA is the most popular technical analysis tool. The SMA helps investors analyze price trends and to identify buy and sell signals. Shopify is currently trading above its five-day, 10-day, 20-day, and 50-day SMAs. I could go on, but you get the point. In general, when a stock trades above its SMA, it means the stock is in a bullish uptrend.

Continued outperformance

Shopify is a high-growth company that is not yet posting positive earnings. As such, valuing the company based on traditional fundamental metrics can prove difficult. At this point, Shopify does look extended. Yet we must not ignore that the company’s uptrend is still intact.

What does this mean for investors? Over the short term, I would consider waiting for a pullback before entering the stock or adding to your position. Over the long term, the stock remains a core holding in any growth portfolio. Expect Shopify to continue its outperformance relative to the index.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and SHOPIFY INC. Foo Contributor Mat Litalien is long Shopify Inc. Shopify is a recommendation of Stock Advisor Canada.

More on Tech Stocks

work from home
Tech Stocks

Could Lightspeed Stock Be a Big Winner in 2023?

Investors can capitalize on Lightspeed’s low valuation and benefit from the recovery in its price.

Read more »

Tech Stocks

TFSA Passive Income: How I’m Investing to Make $2,000/Year From Dividends

I am increasing my dividend income by investing in dividend stocks like the Toronto-Dominion Bank.

Read more »

Electric car being charged
Tech Stocks

Is Now The Time to Buy EV Stocks?

EV stocks may be down now, but don't count them out. They'll soon be back up again, so now may…

Read more »

Happy shoppers look at a cellphone.
Tech Stocks

Better Buy: Amazon vs. Apple Stock

While both Amazon and Apple have bright long-term prospects, Apple stock looks like the best tech company to invest in…

Read more »

A stock price graph showing declines
Tech Stocks

Has Blackberry Stock Finally Stopped the Slide?

Blackberry has not yet delivered the kind of financial results that we know it can, but this is about to…

Read more »

Car, EV, electric vehicle
Tech Stocks

Chinese Stocks are Soaring: This TSX Stock Could Gain

Magna International stock could benefit from China's economic re-opening.

Read more »

Money growing in soil , Business success concept.
Tech Stocks

1 Oversold Growth Stock to Buy for Major Returns in 2023

This growth stock could be the best Canadian stock to buy now for 2023, with shares possibly doubling back to…

Read more »

Hands holding trophy cup on sky background
Tech Stocks

Could BlackBerry Stock Be a Big Winner in 2023?

BlackBerry (TSX:BB) stock more than halved last year amid the tech stock selloff. Could 2023 be a winning year for…

Read more »