Paradigm Capital raises target on Shopify to (U.S.) $100

Shopify (Shopify Stock Quote, Chart, News: TSX, NYSE:SHOP) has already made its mark as one of Canada’s most dynamic tech offerings, but Paradigm Capital analyst Kevin Krishnaratne thinks the company is just getting started.

In a research update to clients today, Krishnaratne maintained his “Buy” rating but raised his one-year price target on the stock from (U.S.) $67.00 to $100.00, implying a return of 36.8 per cent at the time of publication, including dividend.

Interestingly, Krishnaratne says he believes Shopify is not an eCommerce company, but something more.

“Shopify is disrupting retail by leveraging its technology platform to drive innovative apps for merchants and enabling multiple sales channels to reach consumers wherever they may be,” he explains. “Nearly 60% of merchants sell on more than one channel while the company expects 50% of merchants to sell in person this year. Online and mobile are still the key growth areas for the company, and 2017 brings even more places to sell including Amazon Marketplaces, Instagram, and mobile games.”

The analyst admits that value investors might not be pounding the table on Shopify, but says he thinks the company has earned its premium valuation.

“SHOP is not an inexpensive stock, but we continue to believe a premium is warranted for its leading role in the disruption of retail, with market penetration still in the low single-digits,” he says. “The company is growing gross profit at 3–4x the rates of other Enterprise Cloud/E-Commerce peers. We maintain our view that investors will be rewarded for paying a premium today for a future strong free cash flow generating platform.”

Krishnaratne thinks Shopify will generate Adjusted EBITDA of negative $7.4-million on revenue of $620.4-million in fiscal 2017. He expects these numbers will improve to positive EBITDA of $29.2-million on a topline of $875.2-million the following year.

Krishnaratne says he classifies Shopify as a top pick for the second quarter.