Buy the dip, sell the rally. That’s the drill to make money in the stock market. But it is easier said than done. It is no secret that retail stocks, especially e-commerce stock Shopify (TSX: SHOP), ride the Santa Clause rally during the festive shopping season. Yet you missed out on Shopify’s 70% rally from November 1, 2023, to February 2, 2024. Had you invested $5,000 in the stock at the October 2023 dip, you would have made a profit of over $3,380 in just over three months.
Missing out on Shopify stock’s rally
There is no point in being sad about the missouts. It is fair to be conservative with the stocks that crashed during the 2021 Santa Claus rally and halved investors’ money instead of doubling it. That’s a risk one has to take with high-growth stocks.
And there is no point investing in Shopify at a share price above $100. If you look from the valuation perspective, it seems overvalued. The company no longer has a revenue growth rate of 80 to 90%, yet the share price is 16 times its sales per share. Considering that discretionary spending has slowed and high-interest rates have not ruled out fears of a recession, I expect Shopify stock to correct by mid-2024.
As Warren Buffett says, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” While timing the market is a fool’s errand, the greater fool theory states that investors can earn a positive return if they can sell an asset for a higher price, irrespective of its true value.
Shopify is a highly volatile stock. The chances of a downside are greater than an upside. Thus, you are reducing your returns by buying an overvalued stock at the peak. Instead, consider buying a stock where you see immense value and the share price is not justifying that value.
A tech stock to buy and hold
Shopify relies heavily on retailers to buy and sell goods and services using its platform. But Nuvei (TSX: NVEI) is expanding its business beyond e-commerce into enterprise payments. Its 2023 Paya acquisition is gradually showing results, with big names like Microsoft using Nuvei to collect payments from customers.
And thanks to its 634 alternate payment methods – from cards, currencies, payments apps, banks, countries, and crypto -, Nuvei is being adopted by international e-commerce platforms like Kuwait-based Ubuy and America’s Adobe Commerce. For any software-as-a-service, the success lies in a wider adoption and stickiness of its services. Nuvei is getting it.
While the payments app stock has climbed 75% since November 1, higher than Shopify, it is still trading at an attractive valuation of three times its sales per share. It is because the stock is still down 20% from its August 2023 price before short-seller Spruce Point Capital artificially pulled down the stock price over unproven accusations and minted money by shorting the stock.
Making the most of Nuvei’s future growth prospects
You can benefit from the dip and buy in the stock while it is still undervalued. While there will be fluctuations in the short term, this mid-cap stock has the potential to double your money in less than three years. It could also grow severalfold in the long term as it expands its client base to include big names with billions of dollars of transactions. They can bring stability to Nuvei’s cashflows, and small and medium-sized clients can bring seasonality. You could consider buying and holding Nuvei stock for the long term.
