Shopify’s stock is worth the premium price, Paradigm Capital says

After attending Shopify’s (TSX, NYSE:SHOP) Unite 2018 conference, analyst Kevin Krishnaratne from Paradigm Capital feels “as bullish as ever” on the company and its expansion plans for the e-commerce sector. In a research note to clients on Thursday, the analyst reiterated his “Buy” rating and 12-month target of C$160.00 for SHOP.

At the company’s two-day Unite conference for developers and partners in Toronto, along with showcasing a number of new tools for entrepreneurs and retailers, Shopify executives held an afternoon Q&A session with analysts to highlight some of the new product announcements, which Krishnaratne says are meant to expand the company’s ecosystem and offer to clients a more seamless experience.

“We came away from the conference as bullish as ever on Shopify and its vision to enable commerce for merchants big and small, with tools that should help flatten the learning curve for entrepreneurs and allow larger retailers to more quickly adapt to changing consumer demands in an online world,” says the analyst.

In particular, Krishnaratne pointed to Shopify’s payments fraud protection, its dynamic checkout and beefed up Kit CRM, a new chat app called Ping, a new tap & chip point of sale reader and the company’s new App Store. The analyst further notes Shopify’s increased efforts to capitalize on international e-commerce trends.

“SHOP is not an inexpensive stock, trading at 9.2x 2019 EV/Sales versus peers at 6.7x, but we believe a premium continues to be justified for this direct play on mobile and e-commerce and its early stages in the disruption of retail, with market penetration at ~5 per cent,” says Krishnaratne.

The analyst’s $160.00 target is based on an EV/Sales multiple on 2019 estimates of ~10.2x or closer to 17.8x on an EV/Gross Profit basis.

The $160.00 target represents a projected return of 9.5 per cent at the time of publication.