RBC Capital: Why Shopify Deserves To Move Even Higher

Canadian e-commerce company Shopify (SHOP) has seen shares explode by over 150% year-to-date. But according to five-star RBC Capital analyst Mark Mahaney the stock still has room to move even higher. He reiterated a buy rating on SHOP while boosting his price target from $1,000 to $1,250 (C$1,668) after the company reported a clean beat for the second quarter.

Both revenue and operating income easily topped Street forecasts- with revenue hitting $714MM (+97% Y/Y) driven by Merchant Solutions. Meanwhile GMV of $30.1B was well ahead of Street estimates at $19.9B, with growth accelerating in April and May. Operating Margins of 15.9% were a record-high and ~10pts above the previous record-high from Q4:18.

“All in, Fundamentals were Explosive – Robust Revenue growth and surging Op Margins” cheered Mahaney following the print. “When Q2 EPS season is said and done, SHOP is likely to have had among the largest upwards estimates revisions across Tech” he added.

According to Mahaney, Shopify is fully participating in the COVID-powered Online Retail Structural Acceleration at the same time that DTC Retail is inflecting up and at the same time that SHOP is gaining real traction with a series of new products & solutions – Payments, International, SFN, Shipping, etc.

“Despite a doubling in its share price YTD, we believe the market still underappreciates three things about SHOP: its TAM, its Take Rate Potential, and its Operating Margin potential…and hence its EPS power” he explains.

Indeed, the RBC analyst estimates SHOP could reach $25B in Annual Revenue by 2028, making it one of the largest Platform companies. As a result, Mahaney is confident that SHOP deserves a premium multiple given it has the fastest revenue growth on the largest base vs. the firm’s 13 highest-growth comps. “Valuation here is at a high premium. But growth rates are too” the analyst concludes. His price target indicates upside potential of 24% lies ahead.

Overall the rest of the Street takes a slightly more cautious approach to Shopfiy’s outlook. The stock scores a Moderate Buy analyst consensus based on the last three months of ratings, with 9 buy ratings and 1 sell rating out-shadowed by 15 hold ratings. Meanwhile the average analyst price target stands at C$1,459 (9% upside potential).

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