In a research update to clients today, Thadani maintained his “Buy” rating and one-year price target of (US) $60.00, implying a return of 26 per cent at the time of publication.
The analyst says Shopify may look expensive to some Canadians, but a broader perspective reveals a company that is world class and should be valued as such.
“We believe SHOP could invalidate the rule of thumb where Canadian tech stocks have historically tended to trade at a discount to better known and large US peers. We see no reason for well run companies, delivering results to trade at a discount,” he says. “Our enthusiasm is undiminished by recent stock price appreciation. Shopify is one of the most exciting publicly listed Canadian technology companies we have come across in nearly a decade of following Canadian tech. While the stock is up ~70% since the company’s IPO in 2015, we believe there is room for more share price appreciation as the company continues to deliver organic revenue growth. Scarcity value from being in a very small group of recently successful Canadian tech IPOs, organic recurring revenue growth and a strong balance sheet should only help.”
Thadani notes that Shopify is trading at more than five times 2018 EV/Sales, which is a little bit of a premium to both US and Canadians SaaS firms. But he point out that this valuation makes the company seem inexpensive when its outsized revenue growth is taken into account.
Thadani believes Shopify will post EBITDA of $16.71-million on revenue of $559.29-million in fiscal 2017. He expects these numbers will improve to EBITDA of $53.49-million on a topline of $727.86-million the following year.