Will Shopify (TSX:SHOP) Stock Hit $1,000 in a Market Rally?

Shopify stock (TSX:SHOP)(NYSE:SHOP) is hitting 52-week highs. Momentum can carry this top tech stock to new heights.

| More on:

We certainly live in interesting times. Earlier this week, Canada’s tech darling Shopify (TSX:SHOP)(NYSE:SHOP) hit a 52-week high of $946.36 per share. Although Shopify stock has since retreated, it is going parabolic. Is there anything stopping Shopify’s quest to become Canada’s second company to break $1,000 per share? 

It certainly doesn’t appear that way. The S&P/TSX Composite Index is once again struggling with volatility. The Index is down 16.26% year to date, and despite this, high-growth stocks in the tech industry are bucking the trend

This is counter-intuitive to the perceived bias that high-growth stocks underperform in a bear market. Typically, investors flock to the safety of defensive industries as they limit their risk. As such, their willingness to pay a premium for growth diminishes. 

This is not so in the bear market of 2020. Shopify’s stock is up by 72% this year, and I would not bet against the company breaching the $1,000 mark. This is especially true if the market begins to rally.

A top-performing stock

Since going public in 2015, the company has consistently been among the TSX Index’s top performers. Last year, the company returned 173%, and since its initial public offering (IPO), Shopify stock has returned 2,740%.

Let’s put that performance into perspective. A $10,000 investment in the company at its IPO would be worth approximately $284,000 today. Why does the company outperform the markets by such a significant margin? 

For starters, analysts consistently underestimate the company. Since it went public, the company has missed earnings estimates only once. Likewise, it has beat on revenue in all 18 quarters. It is not just the fact that the company tops estimates; it does so by a significant margin. On average, it has beat earnings estimates by 90% to the upside. 

The second reason for the outperformance of Shopify stock is the company’s growth rate. Since its IPO, the company has averaged revenue growth of approximately 65% annually. Although growth is slowing, it is still expected to grow at a rate above 40% over the next few years.

There is arguably no TSX-listed company that offers investors this level of consistent growth. 

Shopify stock’s valuation

Last week, a tweet by the company’s chief technology officer sent the company’s stock soaring. Jean-Michel Lemieux had this to say about the company’s performance:

“As we help thousands of businesses to move online, our platform is now handling Black Friday level traffic every day!

It won’t be long before traffic has doubled or more.”

This is certainly great news for Shopify’s stock. However, is it enough to justify Shopify’s current valuation? If you thought the company was expensive before, it is even more so today. It is trading at a record 47.95 times sales, 36.45 times forward sales and 21 times book value. This makes it by far, the most expensive technology company on the TSX Index. 

Given the fast rise, one might think the company is overbought. Surprisingly, it remained overbought for only a short period of time. After the recent dip, it now has a 14-day relative strength index of 67. Although near overbought territory, don’t expect a big pullback on momentum technicals. 

In fact, it’s bullish across most all momentum indicators — a sign that the company is in blue-sky territory.

Although the company may see further consolidation, there is a high probability that Shopify stock will reach $1,000 per share. I would not necessarily rush out and buy the stock at these valuations, but it is certainly a buy-the-dip candidate. 

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.

Fool contributor Mat Litalien owns shares of Shopify. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify and Shopify.

More on Tech Stocks

A person uses and AI chat bot
Tech Stocks

AI Where No One’s Looking: Seize Growth in These Canadian Stocks Before the Market Catches Up

Beyond flashy headlines about generative AI, these two Canadian AI stocks could deliver strong returns for investors who are willing…

Read more »

Data center servers IT workers
Tech Stocks

Better Buy: Shopify Stock or Constellation Software?

Let's dive into whether Shopify (TSX:SHOP) or Constellation Software (TSX:CSU) are the better options for growth investors in this current…

Read more »

nvidia headquarters with nvidia sign in front
Tech Stocks

Nvidia Just Delivered a Beat-and-Raise Quarter. There’s 1 Red Flag Investors Shouldn’t Ignore.

The chipmaker continued to benefit from robust demand for artificial intelligence (AI). But can it last?

Read more »

GettyImages-1473086836
Tech Stocks

Why Super Micro Computer Stock Is Soaring Today

The volatile stock is getting a boost from Nvidia.

Read more »

Snowflake logo in snowflake office on wall_snowflake-1
Tech Stocks

Here’s Why Snowflake Stock Skyrocketed Today

Shares of the data company are up 32% for the day.

Read more »

man touching magnifying glass button on floating search bar internet google search engine
Tech Stocks

Why Alphabet Stock Was Sliding Today

The parent company of Google is facing heat from U.S. regulators.

Read more »

chart reflected in eyeglass lenses
Tech Stocks

Top Canadian AI Stocks to Watch in 2025

Celestica (TSX:CLS) stock and another Canadian AI stock are worth watching closely this holiday season.

Read more »

Nvidia Voyager Headquarters
Tech Stocks

Why Nvidia Stock Rallied (Again) on Tuesday

The chipmaker is expected to report earnings this evening.

Read more »