Shopify selloff is a buying opportunity, says Paradigm Capital

The recent selloff in shares of Shopify (Shopify Stock Quote, Chart, News: TSX:SH, NYSE:SHOP) combined with its first quarter results make for a buying opportunity, says Paradigm capital analyst Kevin Krishnaratne.

On Wednesday, Shopify reported its Q1, 2016 results. The company lost (U.S.) $8.92-million on revenue of $72.7-million, a topline that was up 95 per cent over the same period last year.

“Our first quarter delivered a great start to the year,” said CFO Russ Jones. “The strong merchant adds in the quarter, together with GMV once again doubling year on year, highlight the value we bring to merchants of all sizes. Our unique combination of strengths is clearly meeting a pressing need in commerce right now.”

Krishnaratne says Shopify is off to an outstanding start to 2016 and thinks the quarter supports his bullish view of the company’s growth strategy, which includes increased expenses as it invests back into its business.

“We agree with management’s strategy to continue investing in the business to drive future growth, especially given the momentum that Shopify is achieving on merchant adds via new and emerging social channels,” says the analyst. “It’s still very early days with respect to the large opportunity ahead of the company in helping merchants capitalize on high-growth global E-Commerce trends, particularly in mobile and social. As previously noted, we also view management’s unchanged guidance related to achieving Q4/17 operating income as a reflection of its prudent approach to growing the business. Cash flow from operations has generally been positive for Shopify and is a trend that we continue to forecast.”

In a research update to clients today, maintained his “Buy” recommendation but raised his one-year price target on Shopify from $35.00 to $37.00, implying a return of 30 per cent at the time of publication.