It’s not too late to buy Shopify, says National Bank Financial

The run in shares of Shopify (Shopify Stock Quote, Chart, News: TSX:SHOP, NYSE:SHOP) has been one of the most noteworthy stories in Canadian technology in some time, but National Bank Financial analyst Richard Tse says there is still time to make money on the stock.

In a research report to clients today, Tse initiated coverage of Shopify with a “Buy” rating and a one-year price target of (US) $80.00, implying a return of 35 per cent at the time of publication.

Tse says that investors who take a pass on Shopify because they think they have missed the boat should take another look.

“It’s not too late,” explains the analyst. “With the stock up 248% since its IPO, the obvious question is whether there’s any upside left? In our opinion, yes there’s still upside from here. “While a US$5.3 billion market capitalization sounds big, we don’t believe that’s the case relative to the market opportunity. We estimate Shopify has a marketshare of ~2% in an addressable market that’s sized at US$14 billion. Like other disruptive leaders, we believe the upside in the stock comes from underlying fundamental growth as we look beyond the short term.

Tse says Shopify is still cheap in his view because we are still early in the e-Commerce growth cycle, because he believes the company is the technology platform leader in e-Commerce today, and because Shopify is “without question” a high probability takeout candidate. The analyst today elaborated on the latter assertion.

“The cycle is the same,” he said. “We’ve seen it many times before in our long history covering tech. A new market emerges, sees outsized growth and then attracts the eye of legacy incumbents who’ve been slow to pivot their business models whether it’s because they’ve been saddled with legacy software that complicates a transition or merely because they have not recognized the changes in the market. Regardless, there are countless examples of it. Shopify’s market is no different. The market, in this case e-Commerce, is still in early days despite how long it’s been around and Shopify is not only positioned as a leader, but what’s differentiated about it in our view is its willingness to invest in innovation much like many of the other market leaders today. It’s for those reasons why we think the Company is a prime acquisition candidate.”

Tse believes Shopify will post negative EBITDA of $5-million on revenue of $602.1-million in fiscal 2017. He expects those numbers will improve to positive EBITDA of $27.5-million on a topline of $860.7-million the following year.