Before TFSA (Tax-Free Savings Account) investors think about taking some profits off the table in those red-hot shares of Shopify (TSX:SHOP), I think it’s worthwhile to consider what’s changed over the past year. Indeed, the tech landscape looks a whole lot better, with rates expected to retreat from here. The Bank of Canada held off on increasing rates in its latest meeting, and I do think that either a pause or cut can be expected for its next few meetings.
Things looking up for SHOP shares!
Indeed, rates have been quite toxic for stocks in recent years. But with inflation running away, higher rates have proven a necessary poison. Now that inflation is on its way down, perhaps to normalized levels (who would have thought inflation would have been transitory?), there may be room to backtrack on a few of those fast-and-furious rate hikes.
Of course, neither the Bank of Canada nor the Federal Reserve (Fed) have anything to gain by hinting at rate cuts or some sort of sudden dovish stance shift. By keeping markets waiting, central banks may be able to put the finishing touches on what could mark the last in its battle with inflation.
Indeed, if the inflation beast does finally get slain in 2024, stocks must be in a spot to win, right?
Not so fast. With a potential recession around the corner in Canada, stocks are sure to be a wild ride. Additionally, it’s hard to tell how much of the market’s recent rally baked in a handful of rate hikes in the new year. All considered, I’d still stick with a cautious, value-based approach rather than seeking to buy what’s already up by double-digit percentage points in recent months.
Shopify stock doubled in 2023. Can it pull it off again?
Shopify stands out as one of the biggest winners of the year. For 2023, shares are up nearly 102% and counting. Hopes for lower rates, an exit from recently-acquired logistics businesses, and the firm’s growing skin in the generative artificial intelligence (gen AI) game are all positive catalysts that could keep SHOP stock’s impressive run going strong into 2024.
Can things derail the stock’s recovery in the new year? Most definitely. The top concern in my books is the valuation. The stock’s not insanely expensive, but it costs a pretty penny to punch your ticket into the name, especially after the latest quarterly estimate crush!
Just because Shopify stock’s looking expensive doesn’t mean it’s overvalued and overdue for a plunge, however. If the catalysts, growth story, and tailwinds are strong enough, such a “pricy” stock can get a whole lot pricier over time. The stock goes for around 14 times price-to-sales (P/S) at writing. Shares seem to have been stagnating after the swift pop in early November. Though I do view the surge as well-deserved, Shopify needs to continue delivering if it’s to keep running from here.
The bottom line on Shopify stock
The magic combo of innovation and improving consumer sentiment could be the key drivers that send Shopify stock toward $150 per share. After a record Black Friday season of sales, perhaps an equally impressive holiday season may be upon us. And going into 2024, the return of the consumer may be the unforeseen tailwind that helps Shopify stock take its impressive relief run to greater heights.
Is the stock a bargain?
I don’t think so, but it does have a path higher. And I’d look for the firm to take that path to the high road. The Canadian icon is back, and it may be a while before it goes into hibernation again!
