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Buy the Dip: Alphabet and Shopify’s Unwarranted Sell-Off

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  • Alphabet stock (GOOG)(GOOGL) was under pressure yesterday after the company announced its third-quarter earnings results. The Google parent company missed EPS analysts’ expectations by $2.34 while beating revenue estimates by $330 million. The sell-off is an expected reaction. However, let’s dig into the company’s technicals to see why it’s a great time to buy a good stock at a discount. 
  • Shopify (SHOP) missed its third-quarter earnings as well. The company has failed to impress the Street, delivering Non-GAAP EPS of -$0.29—which is $0.39 below expectations. Shopify stock is down 4.69% at the moment of writing. 

Why Alphabet’s Q3 earnings miss is a great opportunity to buy for investors

Despite the earnings miss, Oppenheimer raised its Alphabet price target to $1,530 from $1,370 after the earnings report, adding to its price target $160. Oppenheimer emphasized that after excluding the French legal settlement and non-cash mark-to-market of investments, the company’s EPS beat Wall Street estimates.

Moreover, Pivotal Research has raised its price target on GOOGL to $1,445, given the company’s cloud business strength. In addition, Cowen and J.P. Morgan have increased their price targets for Alphabet stock by $25 and $40, respectively. So the updated GOOGL targets come in at $1,525 and $1,460. 

Basically, Alphabet delivered great numbers, and the main reason for yesterday’s sell-off was the company’s investments in Google cloud. However, it’s important to note that the company is trying to gain market share in a very competitive landscape dominated by industry leaders—Microsoft’s Azure and Amazon’s AWS. Moreover, Microsoft has recently awarded a $10 billion government contract, which is a great win for its cloud business segment. If you’re interested in this story, please see Microsoft’s JEDI Win Could Be a Gamechanger

So, let’s focus on the company’s chart to see the technical entry-level. One thing I should also mention is that the stock, many times, has entered into long-term uptrends after sell-offs. Looking at the chart, you’ll see the $1,240 price level remains the key area to watch in terms of technical support. If the stock can hold above that level, there’s a high probability that the share price will reverse its trend.

Plus, Alphabet stock currently trades with a premium to its 50-day and 200-day moving averages. That premium suggests overall strength in the stock. Its RSI index score of 57.07 is currently in a steady decline. But I don’t expect the index to fall below the 50.00 threshold, given the historical index reversals. However, should Alphabet stock break below $1,240 level, the next resistance area comes in at $1,160, around the 200-day simple moving average.

Buy the dip in Shopify stock

Shopify (SHOP) has also failed to impress Wall Street with its earnings results. However, total revenue in the third quarter was $390.6 million, which represents a 45% increase on a year-over-year basis. This total was also above the consensus of $383.8 million. Subscription Solutions revenue and Merchant Solutions revenue, respectively, grew 37% and 50% for the third quarter. Having said that, the company recognized an adjusted loss of $33.6 million versus adjusted net income of $5.8 million a year prior.

Shopify CFO Amy Shapero stated, “Our strong results in the quarter were driven in part by the success of our international expansion, which is just one of the many ways we are investing in the platform.”

Looking at technicals, you’ll see that Shopify stock is currently floating around $310. And the stock has been flattening in the $300–$340 trading range since September. The equity is also trading 25% off its 51-week high reached in August. Moreover, the Shopify stock price currently trades near the middle Bollinger Band, meaning the stock is neither overbought nor oversold. This level also confirms the stock’s RSI index value of 45.19. So the $300 price level remains key area to watch. If SHOP stock can hold that level, it could be an ideal entry-level for investors. 

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