“Software is Eating the World”

In a 2011 Wall Street Journal Article, famous founder, technologist, and venture capital legend Marc Andreessen once wrote that “Software is eating the world.” The quote was in response to the fact that, at the time, many Wall Street analysts were arguing that tech companies had valuations that were too high.

However, in a brilliant act of foresight, Andreessen correctly predicted the wave of software into the economy by saying, “My own theory is that we are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy.” While the article dates back to 2011, the meteoric shift that Andreesen predicted is still taking place today, and Zacks Rank #1 (Strong Buy) stock Shopify (SHOP) is at the forefront.

Company Overview

Shopify provides a cloud-based commerce platform for small and medium-sized businesses. In simple terms, people use the Shopify platform to help create and manage their online businesses. Shopify empowers online businesses with website setup, product showcases, payment processing, and shipping. With Shopify, users can choose from various templates to design and customize their store to fit their brand and brand goals. From its IPO in 2014, the stock was a market leader from a fundamental and technical perspective. Shares rose from single digits to more than $140 per share.

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Strong Earnings Growth Anticipated

Though the stock finally corrected at the end of 2020, it remains the dominant player in its space. While the stock fell during and in the aftermath of COVID-19, the fall was likely not company-specific but rather due to profit-taking and the macro environment. Ironically, the COVID-19 pandemic became a massive catalyst because it sped up e-commerce adoption and, thus, SHOP.

Analysts agree. Analysts who cover Shopify foresee robust earnings over the coming quarters.

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A Positive Earnings ESP Score

The company also beat earnings by 125% last quarter and sports a positive Earnings ESP score which suggests that it is likely to beat earnings when it reports in early August.

Technical Breakout

Finally, the price chart is shaping up. Earlier this year, the 50-day moving average crossed above the 200-day moving average to form a bullish golden cross. Yesterday, SHOP broke out of a multi-week base structure on massive volume turnover.

Image Source: TradingView

Valuation

Though Shopify has grown its earnings dramatically since its IPO in 2015, its price-to-sales ratio is hovering near all-time lows. Furthermore, analysts predict record earnings within the next two years. Meanwhile, the stock is well off its all-time high of over $160.

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Industry Strength

The old saying that “birds of a feather tend to flock together” applies in the stock market. That’s good news for Shopify investors. Other software names, such Unity Software ((U Quick QuoteU – Free Report) ) and Salesforce ((CRM Quick QuoteCRM – Free Report) ) broke out this week – lending more credibility to the move in Shopify.

Conclusion

Shopify stands out from all angles. The software leader has top-tier fundamentals, a historically low valuation, strong analyst estimates, and an attractive chart pattern. Expect Shopify shares to be much higher into 2024.

— Andrew Rocco

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Source: Zacks