Shopify: Is it a Dip-Buy for Growth Stock Investors After a 17% Single-Day Drop?

Shopify (TSX:SHOP)(NYSE:SHOP) stock looks like an intriguing dip-buy following the company’s brutal sales slowdown.

| More on:

Growth stocks have been hammered lately, but don’t expect the pain to last forever. Sure, rates are rising, and that’s bad news for expensive companies that have zero profits or plans to become profitable at any point in the near future. Indeed, future cash flows aren’t worth nearly as much as today. The higher rates are and the further into the future any potential profits are, the greater the punishment that will need to be doled out to the stock under question. Indeed, Mr. Market has been busy penalizing many high-multiple growth stocks that popped through the pandemic. Many growth firms have surrendered their epic gains posted in the pandemic. Some are even lower than where they were at their pre-pandemic peaks.

With such hard-hit stocks down 50%, 60%, 70%, and even over 80%, many who chased momentum are now feeling the pain. It’s unlikely that any such names will recover over the near term. This goes to show the true risks of chasing what’s “hot” or “sexy” on the Street without conducting your own due diligence first! Remember, a stock that doubles, triples, or quadruples over a period as concise as a year or two can easily surrender such gains in an even more concise timespan! Momentum works both ways. And it can turn at the drop of a hat, giving investors little to no time to react accordingly.

Don’t chase momentum: It can reverse on you!

If a stock doubles in a year, getting cut in half in the next year is not out of the ordinary! If a stock triples, it can shed two-thirds of its value or more. That’s why momentum chasing is so dangerous, even though it’s a big draw to beginners.

Amid the tech carnage, many stocks have likely fallen below their intrinsic value. Mr. Market tends to overprice or underprice a stock, especially when there’s panic in the air. Which stocks could bottom out and bounce back? And how can tech recover, given rates have nowhere to go but higher?

While it’s true rates are going up this year, next year, and probably 2024, one must remember that the market is looking into the future by some unknown period. Investors are anticipating such rate hikes. If they anticipate more rate hikes than the Fed serves up, tech stocks could have room to rally! That’s why it makes little sense to worry about what others have already had the opportunity to worry about. You need to be an independent thinker and go against the grain sometimes to make the most profit. Of course, you need conviction and patience to see your investment pay off.

Shopify stock’s epic fall from glory

In this piece, we’ll have a look at one intriguing growth stock that I believe is oversold and potentially undervalued, given all the negativity of late. Consider shares of Shopify (TSX:SHOP)(NYSE:SHOP), which collapsed over 17% on Wednesday over slowing revenues. Undoubtedly, the reaction was a tad overblown, especially given how negative the Street has been of late on the name and other firms like it.

With the stock sinking below $1,000 per share, the stock is in the danger zone. While I wouldn’t look to load up just yet, I would watch it on the way down. The brutal start to 2022 could proceed a nice rally into year-end. Which level should you look for? I think there’s a strong level of resistance at the $700 mark. Down over 57%, SHOP is a falling knife, but, in due time, it will bounce. It’s a wonderful company that’s hit a roadblock that I think it could get through. In the meantime, look for the valuation to reset to the downside and the earnings bar to lower. For now, it’s a top watchlist pick that could reverse at some point this year.

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool owns and recommends Shopify.

More on Investing

Canadian dollars are printed
Dividend Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Toronto-Dominion Bank (TSX:TD) stock could do well in the year ahead.

Read more »

monthly desk calendar
Dividend Stocks

Monthly Income: Top Dividend Stocks to Buy in November

Here are two of the best monthly dividend stocks in Canada you can buy in November 2024 and hold for…

Read more »

hand stacks coins
Investing

A Top TSX Stock to Buy Now for Real Wealth Later

Intact Financial (TSX:IFC) stock is a fantastic dividend-growth play for the next 15 years and beyond.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Thursday, November 14

The U.S. wholesale inflation data and Fed chair Jerome Powell’s remarks about the economy will remain on TSX investors’ radar…

Read more »

Man data analyze
Tech Stocks

3 Reasons Celestica Stock Is a Screaming Buy Now

These three reasons make Celestica stock a screaming buy for long-term investors.

Read more »

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »