We recently compiled a list of the 10 Best High Growth Stocks To Buy. In this article, we are going to take a look at where Shopify Inc. (NYSE:SHOP) stands against the other high growth stocks.
At Wall Street, long-standing investment strategies are being reshuffled as the monetary and political landscape evolves. Reallocation is the name of the game in a week where the S&P 500 and Nasdaq experienced declines of 1.97% and 3.65%, respectively, marking their largest weekly losses since April. Conversely, the Dow advanced 0.72%, and the small cap-focused Russell 2000 climbed 1.68%. A few tech mega-caps—led by Apple Inc., NVIDIA Corporation, Meta Platforms, Inc., and Amazon.com, Inc.—have dominated stock market returns, especially over the last 18 months, a trend that is evident in the diverging performances of the largest 50 stocks in the S&P 500, weighted by market capitalization. This trend, however, seems to have reversed sharply recently, with mega-caps selling off while the average stock holds close to record levels.
Investors are grappling with this sudden shift, and one possible explanation is that mega-caps may have become too expensive. “The stock market is experiencing a long overdue rotation,” said Glen Smith, chief investment officer at GDS Wealth Management. “Investors are pulling money out of high-performing big tech stocks and reallocating it to other market areas.” Notably, tech giants like NVIDIA Corporation, previously popular among options traders, saw a notable shift in sentiment, with demand for bearish puts surpassing calls at the highest rate in five months. “It signals a different regime,” said Erika Maschmeyer, a portfolio manager at Columbia Threadneedle Investments. “The market could be choppier and more volatile, with more dispersion than we have seen.”
This divergence has reassured some Wall Street experts who had been concerned about the rally’s dependence on a few massive tech stocks. Additionally, rising optimism about forthcoming interest rate decreases from the Fed has bolstered smaller and more cyclically oriented names. In that regard, the Fed’s battle against inflation might be nearing its end after U.S. consumer prices unexpectedly fell in June. Chicago Fed President Austan Goolsbee considers the latest inflation data “excellent” and describes persistent housing inflation improvement as “profoundly encouraging.” However, Scott Rubner of Goldman Sachs is skeptical about buying the dip. The tactical strategist believes the S&P 500 has little room for upward movement from its current position. He points out that historically, July 17 has marked a turning point for the equity benchmark, with data dating back to 1928 supporting this claim. Rubner notes that August typically sees the worst outflows from passive equity and mutual funds.
On another note, the U.S. economy added slightly more jobs than expected in June. Nonfarm payrolls increased by 206,000 for the month, surpassing the Dow Jones forecast of 200,000 but falling short of the revised May gain of 218,000, which was significantly reduced from the initial estimate of 272,000. However, the unemployment rate unexpectedly rose to 4.1%, matching the highest level since October 2021 and presenting a mixed signal for Federal Reserve officials considering their next monetary policy move. The jobless rate was forecasted to remain steady at 4%. Although June job creation exceeded expectations, much of this growth was driven by a 70,000 surge in government jobs. Additionally, the health care sector, a consistent leader, added 49,000 jobs, while social assistance contributed 34,000 and construction increased by 27,000.
The 2024 presidential election is heating up, with President Joe Biden opting not to run for re-election and Republican nominee and former President Donald Trump continuing his campaign after surviving an assassination attempt. Historically, presidential election years have often brought strong returns for stock investors, influencing short-term economic policy. However, recent events suggest that this election year may be far from typical.
Our Methodology
To compile our list of the best high growth stocks to buy, we identified companies with strong sales growth over the past five years. These companies were then ranked based on the number of hedge fund investors in the first quarter of 2024, out of a total of 919 hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An enthusiastic customer completing a purchase and receiving an order confirmation via one of the companies online sales channels.
Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders: 65
Annual Sales Growth Over the Past 5 Years: 47.52%
Shopify Inc. (NYSE:SHOP) is a leading provider of internet infrastructure for commerce, equipping businesses with the tools needed to launch, expand, and manage their retail operations across various scales. Shopify’s platform and services are utilized by millions of businesses in 175 countries, playing a crucial role in supporting a diverse range of enterprises.
Starting 2024 on a strong note, Shopify Inc. (NYSE:SHOP) reported a first-quarter revenue increase of over 25%, excluding logistics. The company’s dedication to merchant success is evident in the rollout of over 400 new features and updates over the past two years, enhancing engagement and product adoption. During the earnings call, Shopify Inc. (NYSE:SHOP) announced a Gross Merchandise Volume (GMV) of $60.9 billion, a 23% year-over-year increase, and revenue of $1.9 billion, also up 23% YoY, excluding logistics businesses.
The stock has received a surge of positive ratings from analysts recently. Evercore ISI upgraded Shopify Inc. (NYSE:SHOP) from In Line to Outperform on June 14, setting a new price target of $75.00. This upgrade follows a significant drop in Shopify’s stock price, which had fallen approximately 30% from its 52-week high. Evercore ISI highlighted Shopify’s financial prospects, projecting that its FCF margins, currently at 12%, could rise to high-teen levels by 2026, driven by ongoing profitability improvements.
Additionally, JPMorgan initiated coverage on Shopify Inc. (NYSE:SHOP) with an Overweight rating and a price target of $74.00 for December 2025. The firm emphasized Shopify’s significant presence in the e-commerce sector and forecasts a compounded annual revenue growth rate of 18% through 2026, as Shopify Inc. (NYSE:SHOP) continues to capitalize on the shift towards online commerce and expand its growth initiatives.
An analysis by Insider Monkey of 933 hedge fund holdings for Q1 2024 revealed 65 investments in Shopify Inc. (NYSE). The largest investor among them is GQG Partners, led by Rajiv Jain, holding 20.9 million shares valued at $1.61 billion.
Overall SHOP ranks 9th on our list of the best high growth stocks to buy. You can visit 10 Best High Growth Stocks To Buy to see the other high growth stocks that are on hedge funds’ radar. While we acknowledge the potential of SHOP as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SHOP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.