Shopify (SHOP): Look for Pullbacks to Be Even More Constructive Buyers, Says Canaccord

After 1Q18 earnings and SHOP's Unite developer conference, Canaccord's David Hynes makes a confident case.


Shopify Inc (NYSE:SHOP) may have outclassed first quarter expectations last Tuesday, but the stock nonetheless took an 8% plunge in market trading. After all, the second quarter guide underwhelmed the Street, and the first quarter revenue strength did not prove strong enough to satisfy investors.

On back of the company’s Unite developer conference in Toronto, Canaccord analyst David Hynes advises that “SHOP is fine” in terms of its valuation and urges investors to “look for pullbacks to be even more constructive buyers.”

“While a lack of meaningful near-term profitability will make SHOP volatile when investors’ appetite for risk changes, we continue to believe this stock should be a core growth holding,” argues the analyst, who reiterates a Buy rating on SHOP stock while lifting the price target from $155 to $160, which implies a just under 11% upside from current levels. (To watch Hynes’ track record, click here)

The analyst sees a company carving a clear path apart from the rest of its rivals with its partner ecosystem, one that is generating an “innovation flywheel.” Additionally, the analyst believes that as the company eyes various years of new investments that will yield a future slew of gains for SHOP, it is imperative to dial down short-term expectations regarding margin expansion. That said, Hynes assumes growth has good odds to not “decay nearly as fast” as analysts might be projecting. With plenty of new products on the horizon, Hynes says to put it bluntly, “Shopify wins” from besting competitors with the most deals in the arena and a competitive price/value. It also doesn’t hurt Shopify that it prioritizes making key aspects simple for merchants, adds Hynes.

Bottom line, this analyst is sticking tight with the bulls on Shopify’s opportunity: “We hate to say it, but SHOP feels like one of those names where growth investors just have to hold their nose on valuation (~10.5x EV/R on ’19E) and own at least a starter position. After all, we’re confident that: (a) there’s an upward bias to estimates, so the stock is not quite as expensive as it appears on likely conservative projections, and (b) the combination of positive estimate revisions and category leading growth makes it likely that SHOP can sustain a premium valuation. At the very least, we think the pace of any gradual multiple decay will happen slower than the business grows, which means SHOP should continue to outperform. We would use temporary dips – like that which we saw following Q1 results – as a means to build out positions.”

TipRanks showcases analysts who are positive, yet cautious on the Canadian e-commerce platform. Out of 16 analysts polled in the last 3 months, 10 are bullish on SHOP stock while 6 remain sidelined. Yet, how much apprehension is baked into expectations? Consider that the 12-month average price target of $145.93 reflects only a slight nearly 2% in upside potential from where the stock is currently trading.

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