You don’t have to look far to see the bull case for Shopify (SHOP). As the retail industry continues to turn to e-commerce, Shopify continues to be the go-to e-commerce solution for aspiring entrepreneurs and small businesses looking to set up their online storefronts. As long as e-commerce remains a growing market, and there are currently no signs of it slowing down, Shopify should not have any problems showing consistent growth.
Indeed, Baird’s top analyst Colin Sebastian sees Shopify as growing very strongly, and continuing to take a strong market share. His analysis suggests “Shopify’s “win/loss” ratio is roughly 7:1, measured by the number of new customers gained from competitor platforms vs. those lost.” With the the U.S. generating “the vast majority of new Shopify customers,” this suggests “that the international opportunity is still in the early stages.”
As such, Sebastian maintains an Outperform rating on SHOP stock, while raising his price target from $188 to $208.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Sebastian has a yearly average return of 24% and a 74% success rate. Sebastian has an average return of 78.2% when recommending Shopify and is ranked #21 out of 5,244 analysts.
Even as Sebastian is confident with Shopify’s strength in the market, he says “more questions surfaced in recent weeks related to the competitive landscape…” The analyst “would not dismiss the risks/opportunities for any of these companies” but says “Shopify’s platform required >$1 billion in R&D and marketing investment just over the past four years, and remains differentiated from current alternatives.” Essentially, he says, if a company wants to grow and compete with Shopify, there is considerable costs involved and will not happen overnight.
Sebastian is tweaking upwards his revenue estimates “based on our review of incremental growth and margin trends.” The analyst expects “that Shopify will need to demonstrate greater operating leverage as top line growth slows – to that point, our model contemplates roughly 10% incremental margin for Q3 and Q4 combined, with more significant margin expansion next year.”
All in all, E-commerce has proven itself to be a huge, long-tail growth market, with U.S. e-commerce sales growing about 15% annually since the financial crisis, yet it still accounts for less than 10% of total retail sales. Nevertheless, Shopify has electrified the market with a stock price climb to $200 from $140 a share in four months.
Going forward, can the stock keep up the good times? Unfortunately, analysts see a slight downside from current levels. While TipRanks analysis of 21 analyst ratings on SHOP stock shows a consensus Moderate Buy rating, the average price target among these analysts stand at $194.70, suggesting the stock should face about 3% fall. (See SHOP’s price targets and analyst ratings on TipRanks)