• Shares have fallen from October lows.
  • Recent comments suggest caution in the near term
  • Long-term prospects, however, remain strong.

A 90% rally since mid-October is enough to convince anyone of Shopify (NYSE:SHOP) as a top tech recovery stock. At one point last quarter, they were up more than 120%, and although they took a breather after that, the stock is now firmly back in an uptrend.

For those of us on the sidelines and looking to bulk up our portfolios with some tech stocks that are outperforming the broader market, you could do worse than one of the world’s leading e-commerce companies. Their most recent earnings report showed revenue growth of 25% year over year, a surprisingly solid growth number given what can only be called dire macroeconomic conditions for most of their customer base.

To be sure, then, the stock itself is performing well from a technical perspective, and the internal engine is ticking, but there are some question marks over the near-term outlook. In light of this, Needham’s team has initiated coverage of Shopify stock with an extremely cautious hold rating.

h2 Cautious optimism/h2

Analyst Anna Andreeva and her team noted that recent price increases should boost earnings in the coming quarters, and that the platform’s diversity in product offerings has reduced the risk of concentration. In addition, a new range of beauty and health products along with household items reduced the company’s historical over-reliance on apparel. However, Andreeva highlighted their concerns about margin compression and macroeconomic factors that could limit potential growth.

It’s also the case that Amazon’s ( NASDAQ:AMZN ) Buy with Prime program and the continued risk of inflation-induced declines in consumer discretionary spending remain key risks and headwinds to Shopify’s numbers. The cautious outlook echoes that from Stifel last month, which issued a hold rating on Shopify stock.

Analyst J. Parker Lane highlighted the large addressable market Shopify has in front of it, but lacks complete confidence in the company to take advantage of it. Strong competition, including Shopify’s overreliance on SMB businesses, which are heavily exposed to macroeconomic risks, are too big to completely discount right now. It’s clear that Shopify is a good thing and has a big opportunity ahead of it, but it needs to execute properly to prove it to the bears.

h2 getting involved/h2

Also to be fair, a large number of readers were probably badly burned when the stock went down in the last week of 2021. For context, the stock started its run just after Shopify printed an all-time high at $175. Falling to $25, it fell nearly 90% in the process before bottoming out last October. And given that experience, you’re right to be nervous about getting involved again.

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But with their shares on such a strong uptrend and revenue steadily growing amid dire macroeconomic conditions, do you really want to bet against Shopify? An upside surprise in an earnings report or signs of slowing inflation would both add some serious fuel to the fire. It may be a while before the stock trades in the triple digits again, but it’s looking pretty clear in that direction and looking to move up quickly.

Using Marketbeat’s tools, Shopify stock is currently rated a hold, so keep an eye on it in the coming weeks. Let’s see if February’s high of $55 can be recovered and what the next CPI figures show. If the right combination of conditions can take place, it’s easy to see Shopify ranking high on the list of Q2 performers.

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