Shopify Inc (US) (SHOP) Proves Its Growth Can Outpace Its Rivals, Asserts Analyst Darren Aftahi

Roth Capital is impressed that SHOP's model shows off scaled profitability in robust 3Q turnout.

Shopify Inc (US) (NYSE:SHOP) shares closed on a 3% stumble yesterday after an already 9% hit from Tuesday even though the Canadian e-commerce player’s third quarter print arrived on the Street dressed for victory. Shorts put SHOP shares under pressure, it seems, so even with a strong outperformance from merchant solutions, the company fell prey to a bearish stampede.

However, Roth Capital analyst Darren Aftahi is not fazed at all by investor shakiness, in fact seeing reason to get more confident on the platform that exhibited “scaled profitable growth” in its quarterly performance.

Amid the sharp pullback, the analyst runs in the opposite direction of a scared off Street, reiterating a Buy rating on SHOP stock while bumping up the price target from $117 to $119, which represents a close to 24% increase from where the shares last closed. (To watch Aftahi’s track record, click here)

For the third quarter, SHOP posted $171.5 million in sales, beating the analyst’s forecast of $166.3 million; meanwhile, where Aftahi anticipated ($2.3 million) in non-GAAP operating income, the Canadian e-commerce platform brought $1.7 million to the table, and likewise in non-GAAP EPS, the analyst expected ($0.02) helping SHOP yield quite the beat with $0.05.

Aftahi highlights real strength in Shopify’s performance, especially as “merchant solutions GM’s help SHOP turns a NG profit a Q early,” adding, “3Q outperformed as Plus MRR drove sales strength, while continued adoption of Shipping and Capital helped drive meaningful GM improvement, yielding NG profitability a Q early. We expect expansion of its platform (now on Instagram and eBay) to drive continued merchant solutions growth, and a path to ~$1B in 2018 sales. SHOP continues to show it can grow significantly faster than its peers, while also demonstrating its model can scale profitability. However, we expect continued investment in growth.”

Long-term, the analyst closes on a note of confidence for SHOP’s success, commenting, “We expect over time GPV to ‘catch up’ as GMV continue to grow and SHOP payments is offered in new international markets. However, SHOP still benefits from fees when a merchant uses a payment gateway (other than SHOP payments) from transaction fee revenue and also revenue share from the processing gateway.” Worthy of note, this one-two punch helped carry the strength of the company’s merchant gross margins in the third quarter.

Is this a short squeeze stock pick or does Aftahi’s bullish praise match the word of the Street? All things considered, it looks as if the analyst is in good company, as TipRanks analytics demonstrate SHOP as a Buy. Based on 13 analysts polled by TipRanks in the last 3 months, 9 rate a Buy on Shopify stock while 4 maintain a Hold. The 12-month average price target stands at $109.45, marking a nearly 14% upside from where the stock is currently trading.

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