AMZN Stock: Competitor Offers Greater Growth
Amazon.com, Inc. (NASDAQ:AMZN) stock is an investment that defied logic for the longest time.
The company was unable to churn a profit, yet the shares continued to soar. A lucky few had the foresight and vision to see the potential that Amazon stock offered, and they are probably sitting a whole lot comfier with a few extra dollars padding their investment accounts. At a $360.0-billion market capitalization, the valuation is starting to become a bit rich for investors like myself who prefer smaller valuations.
Does this mean I am bearish on AMZN stock? The answer is no; I am actually quite bullish, but I just don’t think this name has the potential to make me rich if I buy it right now. Shopify Inc (NYSE:SHOP), on the other hand, is just the investment vehicle I am looking for.
Shopify Inc is an eCommerce play and, as a result, has similar growth potentials as Amazon stock. SHOP stock has a $3.4 billion market cap, and is tiny in comparison with Amazon stock’s $360-billion market cap. If Shopify grew to 10% of Amazon’s valuation, that would represent a 9,500% return from current levels. These are the types of potential returns I am looking for.
There are number of compelling reasons why I like this name. SHOP stock has only been trading for a little over a year. It has yet to become a household name, and even fewer people own it. I believe that this name is under-owned by the retail investor. If the potential is there, it will take years before the market is saturated with this investment.
The second reason, and probably the most compelling reason because it allows me to systematically enter a trading strategy, is the stock chart. The following chart of Shopify stock illustrates the bullish price action that has dominated the current trend.
Chart courtesy of StockCharts.com
On May 9, SHOP stock generated a “golden cross.” A golden cross is a bullish signal that is produced when the slower 50-day moving average crosses above the faster 200-day moving average. This signal is used by traders to confirm that a bull market is on the horizon. It is always wise to trade in the direction of this signal. A long or neutral position is warranted in the face of such a signal.
SHOP stock traded within a channel that created a trading range. Two parallel lines that define the upper and lower bands produce the channel. The distance between the upper and lower bands is the trading range. It is common for channels to emerge as continuation patterns. Shopify stock rose into the aforementioned pattern, thus it was not a surprise when the share price broke out in August to the upside.
SHOP stock price is moving higher, propelled by a bullish tailwind. The bullish trading signals and price patterns confirm this premise.
The following chart illustrates the current juncture for Shopify stock.
Chart courtesy of StockCharts.com
A few weeks after SHOP stock went public, the share price peaked at $42.00 and was progressively sold off until shares finally bottomed out in January 2016. One year later, shares have once again returned to test this price level. This price point serves as the last level of resistance. If shares can close above this level, there is little left in the way that can stop Shopify stock from surging higher. $42.00 is indeed an important level.
The Bottom Line on AMZN Stock
Amazon stock is great investment vehicle, and it has made many investors rich in the process. But if we use today as a starting point, it is doubtful that the same potential exists. If getting rich is the objective, then an investment with a smaller capitalization and the ability to grow must be fulfilled. Shopify stock fulfills that criteria at this juncture and is approaching the last level of resistance that, when breached, could open the door to much higher prices.