Tech Meltdown: Has Shopify Stock Bottomed Out?

Shopify stock has recently plunged to its lowest level in more than six months.

Jitendra Parashar

Author Bio Jitendra Parashar is a financial journalist who has been writing for The Motley Fool Canada since June 2020. With more than 13 years of experience in financial journalism, equity research, and market analysis, he helps investors understand market developments and identify long-term investment opportunities. Before joining The Motley Fool Canada, Jitendra spent several years at Market Realist covering U.S. equities, major economic developments, and developments in the automotive and technology industries. He also worked in commodity and currency research at brokerage firms, gaining insight into how economic trends, central bank decisions, and geopolitical events influence financial markets. Jitendra writes for beginner investors, dividend seekers, and Canadians looking to build wealth over the long term. He also contributes to the daily TSX Today series, explaining key Canadian market developments and highlighting news investors should watch. Based in India, Jitendra follows Canadian and U.S. markets closely. Outside of work, he enjoys travelling in the Himalayas, street and nature photography, and exploring programming and artificial intelligence. Education MBA in Finance and International Business Bachelor's degree in Journalism Areas of Expertise Canadian and U.S. financial markets, long-term equity investing, dividend investing, macroeconomic and geopolitical trends, automotive stocks, emerging technologies, and artificial intelligence. Social Media Profiles LinkedIn Muck Rack Favorite Investment Quote “Simplicity is the master key to financial success.” — John C. Bogle

Published January 19, 2022 10:19 am EST

Shopify (TSX: SHOP)(NYSE:SHOP) stock has been under pressure for the last couple of months amid the ongoing tech meltdown. After posting its all-time high near $2,229 on November 19, the stock has seen about 41% value erosion. On January 18, SHOP stock plunged to its lowest level in more than six months, even after releasing a piece of positive news related to its international market expansion. Before we discuss whether Shopify stock has bottomed out, let’s take a closer look at some recent related developments.

online shopping — Image source: Getty Images

Shopify stock falls, despite positive developments

Looking at the recent downside trend in Shopify stock, most investors would try to look for company-specific negative news that triggered this selloff. In reality, there haven’t been any significant negative development or any major change in its growth outlook during this period. In contrast, the company has shared several positive developments lately, which highlight management’s consistent focus on business growth acceleration.

To give you an example, Shopify announced its partnership with the Chinese e-commerce giant JD.com on January 18. This partnership would simply make it easier for the Canadian e-commerce company’s merchants to sell their products in China — the world’s largest e-commerce market. Shopify merchants would be able to utilize JD’s U.S.-based warehouses and logistics facilities to fulfill their orders for customers in China. The partnership is also expected to significantly reduce the time for the U.S. brands to start selling their products in China to around three to four weeks.

Overall, this partnership could attract more U.S.-based merchants towards its platform who want to expand their international market reach, in my opinion. That’s why it could help Shopify report solid growth in its merchant count in the coming years, leading to stronger growth in its total sales.

While the normal market condition, such positive news could trigger a rally in Shopify stock. However, the stock dived by 5% on Tuesday instead — mainly due to the ongoing tech sector meltdown.

Has SHOP stock bottomed out?

In 2021, SHOP stock rose by 21%, posting its lowest yearly gains since its listing on the TSX in 2015. Interestingly, the stock delivered an outstanding 661% positive returns previously in 2019 and 2020 combined.

Currently, the ongoing tech sector selloff is mainly driven by investors’ rising expectations about a tighter monetary policy in the U.S. to keep inflation in check. In such a market condition, even a minor negative trigger could accelerate the downside correction in high-growth stocks like Shopify. That’s one of the reasons why it’s extremely difficult to predict at the moment whether SHOP stock has already bottomed out.

Is Shopify stock worth buying today?

Considering the risks involved due to the ongoing tech sector crash, investors with a small risk appetite may want to avoid buying Shopify stock today. Nonetheless, you should definitely keep a close eye on any sign of a positive reversal in it to buy this amazing tech stock at a big bargain. Given its consistently improving growth outlook and huge growth potential of the e-commerce industry, SHOP stock has the potential to yield outstanding returns for long-term investors.