close icon

Shopify is One of Many Bubble Stocks Out There

It is becoming pretty clear that a speculative bubble is inflating right now. Money-losing companies with market caps in the tens and even hundreds of billions of dollars have become the norm, not the exception. People, who have been in the market for just a couple of months are bragging online about the phenomenal returns they’ve made, as if stocks are not businesses but lottery tickets. One such bubble stock is Shopify.

Every bubble needs a story. And not just any story, but a great story about changing the world or being “the next” something. Shopify is said to be the next Amazon. Hardly anyone saw the original Amazon coming, but now everyone agrees on the next one. We remain skeptical.

The investing public is so convinced and so optimistic about Shopify’s future success, that the company is currently worth nearly $150B. To put that in perspective, Bristol-Myers Squibb, the pharmaceutical major, has roughly the same market cap.

Bristol, however, makes almost $50B in sales and $15B of free cash flow a year. Shopify’s revenue, in contrast, is ~20 times lower and the company is barely profitable. Investors appear to be taking future growth for granted and willing to pay dearly for it years in advance…

Shopify Can Drop 50% or More in Elliott Wave Correction

Obviously, fundamentals don’t count for much in a speculative mania. So, we’re taking a look at Shopify stock from another angle. The chart below puts its spectacular surge in Elliott Wave context.

Putting Shopify stock in Elliott Wave context

In just five years, SHOP climbed from as low as $18.48 to as high as $1285.19. There is no point in calculating those gains in percentage terms. Suffice it to say it’s A LOT. The problem is that this huge uptrend looks like a textbook five-wave impulse.

The pattern is labeled (1)-(2)-(3)-(4)-(5), where the five sub-waves of wave (1) are also visible. According to the theory, a three-wave correction in the opposite direction follows every impulse. So, if this count is correct, we can expect a notable decline in Shopify stock soon.

To achieve a meaningful retracement, the negative phase of the cycle should drag the price down to at least the support of wave (4). Given how overvalued Shopify currently is, we won’t be surprised to see an even bigger drop. The RSI indicator supports the bearish outlook with a strong divergence between waves (1), (3) and (5).

Business fundamentals don’t matter until they do. No trend lasts forever and every bubble ends the same way – in tears. Judging from the Elliott Wave analysis above, there is not much left of Shopify’s bull market. As market euphoria rages on, investors would be better off keeping their animal spirits in check.

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:

HZNP Stock Blows Past All Expectations. Now What?

We first covered Horizon Therapeutics, then Horizon Pharma, in September 2016. The stock was trading around $18 a share after a decline from the vicinity of $40. However, we didn’t think it was time to buy. The structure of the preceding rally ending in mid-2015 was impulsive and we thought the bears were not done…

Read More »

AZPN Stock Too Expensive for Its Own Good

Exceptional margins and returns on assets and equity make the surge in Aspen Technology shares easy to understand. AZPN stock exceeded $162 a share last week, up 122% from last year’s low at $73. On the other hand, the software company is expected to earn $5 a share in this fiscal year. This means the…

Read More »

Amerco Stock Carries Very High Risks Above $500

Amerco is a $10B moving and storage operations and insurance provider. The company is founded in 1945 and went public in the mid-1990s. The stock trades under the symbol UHAL and is currently hovering at all-time highs above $500 a share. The recovery from March 2020 was especially rewarding with Amerco stock rising 125% in…

Read More »

Anthem Stock Completes a Pattern it Started in 2001

With a market cap of $72B and 2020 sales of $122B, Anthem Inc. is one of the largest life, hospital and medical insurance providers in the U.S. The company went public in October 2001 and is one of not too many firms never to trade below its IPO price. Nearly twenty years ago, the stock…

Read More »

AJG Stock to Lose Half as Post-2009 Uptrend Ends

The pandemic disruptions hardly put a dent in Arthur J. Gallagher’s business. Despite slightly lower revenues, one of the largest insurance brokers in the world achieved its highest profit ever in 2020. As a result, AJG stock climbed to a new all-time high of $129 in December. Currently hovering around $116, the stock still looks…

Read More »

S&P Global Can Disappoint in Next Couple of Years

In July last year we wrote an Elliott Wave analysis highlighting the possibility of a notable 40%+ correction in Moody’s stock. Seven months later now, the share price is little changed and the negative outlook remains valid. Today, we are going to examine Moody’s major rival – S&P Global Inc. S&P Global is a ratings…

Read More »

SBAC Stock to Reach New High Before Bears Show Up

SBA Communications is a real estate investment trust, providing wireless communications infrastructure to companies like Verizon and AT&T. SBAC went public in mid-1999, only to participate in the final months of the dot-com bubble before it all came crashing down. The stock exceeded $57 a share in the summer of 2000. By late-2002, it could…

Read More »

More analyses