close icon

Shopify Investors Probably Believe in Unicorns, Too

Shopify is a cloud-based commerce platform founded in 2004 and headquartered in Canada. Its market cap is approaching $50 billion, even though the company is not yet profitable. We know from history that profits determine a business’ success in the long-term.

In the short run, however, investors’ emotions is what makes a stock rise or fall. In Shopify’s case, investors have been too optimistic recently. The stock is up 2160% in the past four years, climbing from $18.48 in January 2016 to $422.55 this month.

Unfortunately for the bulls, no trend lasts forever. Facts are facts and it is a fact that a price to sales ratio of 32 makes Shopify extremely overvalued. Therefore, once investors run out of optimism, the stock is likely to fall significantly. The question is, How soon?

Shopify stock to decline after completing Elliott Wave impulse pattern

The daily chart above shows Shopify’s entire progress since the company went public in May 2015. As visible, the price appears to have formed a textbook five-wave impulse pattern, labeled 1-2-3-4-5. It certainly has been a wonder to behold while it lasted.

The problem is the Elliott Wave theory states a three-wave correction follows every impulse. Normally, the corrective phase of the cycle would erase the entire fifth wave. For Shopify, this means a tumble to the support of wave 4 near $280.

Given the company’s lack of profitability, it is not that hard to imagine a 50% selloff once wave 5 ends. The RSI indicator reinforces the negative outlook with a bearish divergence between wave 3 and 5. If this count is correct, the next couple of years can be a lot different than the past four. Unless investors believe in unicorns, too, they should stay away from Shopify stock.

Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!

Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

Moody’s, a Buffett Darling, Trading in Late Fifth Wave

Moody’s Corp. has been a long-time holding in the Berkshire Hathaway portfolio. It is also the seventh biggest position in it as of the end of March 2020. The company has a strong competitive advantage, it is highly profitable and growing. No wonder Warren Buffett likes it so much. The stock did decline sharply in…

Read More »

Dollar General Stock Bulls are Looking for Trouble

As a general merchandise discount retailer, Dollar General was among the handful of businesses that actually benefited from the pandemic. People piled on necessities preparing for what looked like the end of the world for a while. As a result, sales at Dollar General surged in the midst of the crisis. While its stock price…

Read More »

Veeva Systems Stock Trades in Bubble Territory

It is true that the Fed’s recently re-adopted zero rate policy and stimulus are distorting financial markets. Interest rates are like gravity to financial assets. The lower the rate, the higher asset prices go and vice versa. As a result, stocks in general tend to ignore the economic reality right now. Among the companies trading…

Read More »

PNC Financial Completes Bullish Elliott Wave Cycle

Economic crises have always been especially tough on financial companies. Usually, when the general market is falling, financial stocks are crashing even harder. PNC Financial for example, lost 81.6% in the 2008-9 recession, while the S&P 500 fell by “just” 58%. PNC Financial stock suffered more than the general market during the recent coronavirus selloff,…

Read More »

Avoiding the 54% Crash in Brookfield Partners

When we last wrote about Brookfield Partners, the stock was hovering around $44 a share. That was on July 27th, 2019. Back then we though the price can reach $50, but instead of celebrating, the bulls should be getting ready to leave. The reason for our skepticism wasn’t some special insight into the company’s operations…

Read More »

Alphabet Stock To $1700 and… Below?

Similarly to the market at large, Alphabet stock felt the tremors caused by the coronavirus panic. The Google parent’s share price fell from $1531 to $1009 between February 19th and March 23rd. One of the biggest and strongest companies in the world lost 34% of its value in a little over a month. However, thanks…

Read More »

Sidestepping the 55% Crash in Steel Dynamics Stock

It’s been a little over four months since we wrote about Steel Dynamics. On January 16th, the stock was hovering around $33 a share. The price was down 37% from its May 2018 peak at $52.10. Yet, despite the reduced price, we thought investors would be better off avoiding the name. Our bearish opinion was…

Read More »

More analyses