Shopify Inc (US) (NYSE:SHOP) shares took a 9% zap yesterday and continue to fall almost 4% in trading today after the Canadian e-commerce platform despite unleashing robust third quarter results, with many pointing to a short seller squeeze placing shares in unexpected hot water.
Top analyst Colin Sebastian at Baird believes share weakness presents a compelling buying opportunity here to investors willing to take the volatile gamble, reiterating an Outperform rating on SHOP stock with a $110 price target, which implies a 15% increase from current levels.
“We would once again be buyers on pullbacks as Shopify continues to execute well, benefiting from strong secular tailwinds providing meaningful long-term growth opportunities. In short, Q3 results beat high-end consensus expectations with another quarter of record merchant additions (and first quarter of operating profit) while Q4 guidance was essentially in-line (we assume 2-3% upside to these forecasts.) With the stock arguably priced for near perfection amid distractions from a short report, we expect some ongoing volatility,” explains one of the Street’s best performing analysts.
In answering the question of the hour as to “Why is the stock down?” Sebastian dives in: “Beyond the simple explanation that ‘expectations were higher,’ we presume short sellers are applying pressure in what otherwise was a fairly strong print. Unfortunately, a sizable portion of the conference call discussed elements of the recent short report, which we view mostly as a distraction.”
Additionally, other valuation anchors pressuring SHOP shares could be that even with third quarter exhibiting upside, there was not as stark of a beat as in past quarters, with revenues topping consensus by 3% compared to 5% this time last year (and in the second quarter). Meanwhile, the midpoint of the fourth quarter guide mirrored the Street rather than past outlooks that offered much more meaningful upside. Lastly, the analyst the analyst points to a case of “a few mixed operational metrics” that to Sebastian indicate far better strength in the medium to small business retail space compared to “any weakness among larger (Shopify Plus) clients.”
Colin Sebastian has a very good TipRanks score with a 79% success rate and a high ranking of #15 out of 4,699 analysts. Sebastian garners 25.2% in his yearly returns. When recommending SHOP, Sebastian realizes 89.9% in average profits on the stock.
TipRanks analytics demonstrate SHOP as a Buy. Based on 12 analysts polled by TipRanks in the last 3 months, 8 rate a Buy on Shopify stock while 4 maintain a Hold. The 12-month average price target stands at $107.20, marking a nearly 8% upside from where the stock is currently trading.