Ignore the noise about Shopify, Mackie Research says

Even with the lukewarm reception investors just paid to Shopify’s (Shopify Stock Quote, Chart, News: TSX:SHOP, NYSE:SHOP) first quarter 2018 financials, the e-commerce company has plenty of runway for revenue growth going forward, says Nikhil Thadani, analyst for Mackie Research Capital, who on Wednesday maintained his “Buy” recommendation and $170.00 target price (all figures in US dollars unless noted otherwise).

Yesterday, Shopify announced its first quarter 2018 financial results, producing revenues of $214.3 million, a 68 per cent uptick from the same period a year earlier and beating the consensus estimate of $202 million. Nevertheless, the company’s projected revenue growth for 2018 of 50 per cent comes in lower than last year’s growth (73 per cent) and 2016’s (90 per cent).

Thadani says that with SHOP falling in share price yesterday, investors were likely hoping for higher guidance from the company, although he is not particularly concerned about the market’s reaction.

“We are not perturbed by noise in the stock price,” he writes. “That said, we have previously indicated that market risk is perhaps more relevant than execution risk to the stock’s trajectory. SHOP trades at ~9x 2019 Sales (in effect, lower, given the company’s history of revenue outperformance) vs. high growth SaaS names at ~8x.”

Thadani argues that with new products and geographic expansion on its mind, Shopify not only has ample room for growth but has a marked head start on other e-commerce players looking to get into the space.

“We do not expect the company’s philosophy of prudently managing investor expectations to change materially,” he says. “In other words, we suspect 2018 revenue could surprise to the upside. We model improving EBITDA and Adj. EPS in 2018 & 2019 given the operating leverage demonstration in Q1 despite a ~$3 million FX headwind to operating income. In addition, the balance sheet with ~$1.6 billion in cash and marketable securities (no debt) could provide optionality.”

The analyst’s $170.00 target price stems from a ~12x C2018 EV/Sales valuation and represents a 33.1 per cent return at the time of publication.