Shopify (TSX: SHOP) stock had an incredible run last week, as the firm clocked in some solid numbers alongside some big changes. Investors applauded not only the quarter but events that could help propel the e-commerce kingpin back on the right track. It’s been a brutal plunge for Shopify stock in 2022. Now that shares have had some time to calm down, I think Shopify stock is in a spot to be constructive again.
Undoubtedly, it’s hard to chase any security after it’s had a more than 31% run in just two days. In numerous prior pieces, I’ve urged investors not to forget about Shopify and that the firm was likely priced well below where it ought to be.
Shopify stock: Is it too hot to handle after such a sudden surge?
After last week’s hot surge, shares are sitting at around $83 and change. With shares up 70% year to date and 130% off their October 2022 lows, Shopify stock may seem just a tad too hot to handle. Personally, I’d much rather wait for a near-term pullback. After such a sudden upward move, corrections are bound to happen. That said, I don’t think investors are getting too far ahead of themselves.
Shares are still off over 61% from their all-time highs, and I still view the company as reasonably priced given its longer-term growth prospects. If you’re keen on the name, it’s not a bad idea to get some skin in the game here, even after such a quick pop.
However, investors looking to jump in here had better be prepared to “average down” into a larger position. For instance, you can buy a fifth of a position here with the intent of buying another fifth (or more) after a steep pullback from current levels. It’s tough to gauge where such a choppy stock will be in a month or quarter from now. So, instead of averaging down at lower prices, you may wish to add to a position over time. That way, you’ll take the “timing” factor out of the game as you build a position.
Of course, there are always risks associated with dollar-cost averaging. Most notably, missing out on further upside. While I think Shopify still has plenty of room to run. I think it’s only prudent to risk a bit of upside in an effort to lower your cost basis over time.
Why I’m even more bullish after Shopify’s wonderful quarter
Shopify’s quarter itself was pretty stellar. However, I think it was the news that accompanied the numbers that really sent shares rocketing more than 30% in two days. The company seeks to sell its logistics operations, which, I believe, is a brilliant move.
Why? It would be ideal if Shopify were to offer delivery services and e-commerce tools for merchants.
However, I don’t think it’s necessary. It’s too expensive to get into the logistics game. And I think the attempt to do so wouldn’t even allow the firm to pull even with a rival like Amazon.com. Amazon’s pockets are too deep, and logistics is not an area where I see Shopify pulling ahead of its long-time rival.
As Shopify sticks with what it does best, I think it can be a rewarding play for investors again. Further, a heavyweight may have been lifted off the margins of the firm. As the company continues to trim costs (the firm is also laying off another 20% globally), the market likes the direction where Shopify is going.
Last week’s hot pop may precede a pullback. And if it does, I may just consider jumping in. In short, Shopify’s a stellar pick for long-term investors. However, there will probably be extreme turbulence over the nearer term.
