Shopify stock eyes breakout as bullish inverted H&S pattern takes shape

Shopify stock has rebounded in the past few weeks, moving from the year-to-date low of $94.47 to the current $121.63. This rebound may continue, helped by its modest revenue growth and encouraging technicals.

Shopify stock jumps after crucial settlement

Shopify, the operator of the biggest e-commerce software, soared after reaching a settlement with Shopline, a company owned by Joyy, a publicly-traded company. 

The two companies asked a judge to bar Shopline from distributing its software. In a statement, Shopify said that Shopline had copied its Dawn theme, rebranded it, and sold it against it. Its chief counsel said:

"We took them to court and ​they've been ordered to stop and to pay us. Open source is built on trust and we'll defend that every time someone treats it as a ​free pass to steal."

The terms of the deal were confidential, but it is estimated that Joyy, which is valued at over $3.3 billion paid millions of dollars. Its stock jumped by 1.38% after the filing. 

Shopify’s business is doing well

While Shopify jumped on Wednesday, it remains 35% below its highest level last year, mirroring the performance of most software companies. The general view is that e-commerce companies will start abandoning Shopify and build their websites using AI. Indeed, it is now possible to build advanced e-commerce stores using tools like Lovable and Cursor.

However, there is a likelihood that the company’s business will continue doing well in the long term because of the value it gives its customers. The most recent results shows that it continues to add more costumers to its ecosystem. It added firms like Balmain Paris, Rag & Bone, Mulberry, and The Outnet.

The numbers also showed that its revenue growth jumped by 34% to $3.17 billion, a great number for a company that has been in the industry for years. Its gross profit rose to over $1.56 billion, while its free cash flow rose to $476 million. 

The management also boosted its forward guidance and now expects revenue to grow in the high-twenties in the second quarter. The consensus among analysts is that its revenue growth will be 28% to $3.4 billion, while its annual figure will grow by 28% to $14.8 billion. 

These numbers mean that the company is a bargain on a rule-of-40 metric. It has a forward revenue growth rate of 28% and a profit margin of 14%, giving it a multiple of 42%. 

Shopify stock price technical analysis

SHOP stock chart | Source: TradingView

The daily chart shows that the SHOP stock price has rebounded in the past few weeks, moving from a low of $94.47 in March to $121.63 today. It has formed an inverted head-and-shoulders pattern, a common bullish reversal sign in technical analysis. 

The stock has also jumped above the 50-day and 100-day moving averages, a sign that bulls are in control. Therefore, the path of the least resistance for the stock is bullish, with the next key target to watch being at $150.

READ MORE: Wall Street experts are bullish on Shopify stock: should you?