Not a lot of positives surround Shopify (SHOP) – Get Shopify Inc. Class A Subordinate Report at the moment. Unfortunately for many investors, that disappointment is not limited to just Shopify, but also includes most growth stocks at the moment.
Many growth stocks are down 60% to 70% or more. Several have seen their stock prices decline by more than 80%.
For Shopify specifically, the stock was hitting all-time highs in November and was then down 82% just six months later.
In that respect — with the stock going from roughly $1,760 down to $300 — some are likely wondering why Shopify is going through with its planned 10-for-1 stock split, which will take effect on June 28 and begin trading on a split-adjusted basis on June 29.
For what it’s worth, Shopify stock has been cut in half since announcing the stock split in April.
Knowing the bullish effect it can have at times, some of the FAANG components have elected for stock splits as well.
A 20-for-1 stock split gave a nice short-term boost to Amazon (AMZN) – Get Amazon.com Inc. Report in late May and in early June, while Alphabet (GOOGL) – Get Alphabet Inc. Report (GOOG) – Get Alphabet Inc. Report has a planned 20-for-1 stock split for next month. Tesla (TSLA) – Get Tesla Inc. Report is also waiting on shareholder approval for a 3-for-1 stock split.
The question is, will a stock split make a difference for Shopify?
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On paper, a stock split doesn’t do anything to change the value of a company. It only serves to create demand for the stock and make it appear more approachable. In that effort, it actually does succeeds.
However, splitting a stock in the depths of a bear market is not quite the same as doing so in a bull market.
I don’t think a stock split will save Shopify stock. Instead, its success or failure will largely depend on company-specific news and events, and on how growth stocks as a whole trade from here.
As I look at the chart, the 50-day and 10-week moving averages remain active resistance. The $400 level also remains as resistance. If Shopify stock can clear this area — which will be $40 after the split — then bulls could be looking at a quick move up to the 21-week moving average and the $500 level ($50 post-split).
Longer term targets could include $650 ($65), then the $750 to $780 zone ($75 to $78).
On the downside, $300 has to hold as support on a closing basis if the bulls want to stay long this name. From that perspective, Shopify stock may even represent an attractive risk/reward from current levels.
If it loses $300 and can’t reclaim it, there’s no notable support on the charts in the short term.