Its stock has done exceedingly well since its dual-listed IPO in the summer of 2015, but Paradigm Capital thinks Shopify (Shopify Stock Quote, Chart, News: TSX, NYSE: SHOP) is far from done making investors cash.
Paradigm today released a report detailing its top picks for the first quarter of 2017 and Shopify made the list. Analyst Kevin Krishnaratne, who has a “Buy” rating and a one-year price target of (US) $50.00 on the stock, says the Ottawa-based ecommerce platform provider has barely scratched the surface of what it can do.
“Shopify is in the very early stages of disrupting retail, with ~325K customers on its platform, revenue growing ~100%, gross profits up ~80%, and subscriber gains at ~70%,” says Krishnaratne. “Trends should continue to benefit from recent initiatives such as Shipping, International Payments, and new channel launches. Our view is that estimates are very conservative, with multiple ways for Shopify to beat and raise guidance. In turn, our current US$50.00 target, which is based on 7.0x EV/Sales on 2017/2018, likely also has room for upward revisions on the back of earnings events and new product releases.”
In a research update to clients on October 31, the analyst further explained the reasoning behind his new price target.
“While we have not made any material changes to our estimates, we are rolling forward our valuation by six months to a straddling of 2017/2018 estimates,” he said. “Our new $50.00 target (was $42.00) reflects an EV/Sales multiple on 2017/2018 estimates of ~7.0x and an EV/Gross Profit multiple of ~14.0x. On an EV/Gross Profit basis, Shopify is trading at a premium of ~25% to recent takeouts in the E-Commerce space (Demandware and NetSuite), but we think that a premium is justified given our expectations of gross profit growth of at least +40% in 2017 versus peers in the 20–30% range.”
Shares of Shopify on the New York Stock Exchange today closed up 2.94 per cent to $41.34.