Shopify named a top pick for Q1 at Paradigm Capital

The analysts at Paradigm Capital Wednesday issued a report to clients in which they revealed their top picks for the first quarter of 2018. Among them is Ottawa-based Shopify (TSX, NYSE: SHOP), which had a more than colorful 2017.

Analyst Kevin Krishnaratne says that while the high-flying Canadian tech might not produce the triple-digit gains it posted last year, it’s still a stock worth owning. He says dispite the fact that Shopify has become a household name that is perhaps on par with Waterloo’s BlackBerrry, the company is still in its early days.

“Shopify is in the very early stages of disrupting retail, with ~500K customers on its platform, revenue growing ~75% and gross profits up ~80%,” the analyst says. “Trends should continue to benefit from recent initiatives, such as Shipping, International Payments and new channel launches.”

Krishnaratne has a “Buy” rating and one-year price target of (U.S.) $130.00 on Shopify, which closed on the New York Stock Exchange Wednesday up 2.1 per cent to $107.75. The analyst says his target, in fact, might prove to be too low.

“Our view is that estimates are very conservative, with multiple ways for Shopify to beat and raise guidance,” he says. “In turn, our current US$130.00 target, which is based on 10.5x 2018e/2019e EV/Sales, likely also has room for upward revisions on the back of earnings events and new product releases.”

Shopify was flying high in 2017 when, In October, U.S.-based short-seller Citron issued a report claiming the company was a “a completely illegal get rich quick scheme” and characterizing its affiliate program as primarily populated not by Small and Medium Sized businesses, but by “bloggers and influencers” who don’t disclose they are being paid by Shopify. Comparing the company to Herbalife, the report, entitled “Citron exposes the Dark Side of Shopify” put an immediate price target of $60.00 on the stock, which had closed at $119.00.

But the response of investors in the weeks and months that followed was muted. After trading in the low 90 (U.S.) dollar range, the stock has bounced back over $100, with a recent high of $113.36 in late November.