Buy Shopify on pullbacks, National Bank Financial says

Shopify (TSX, NYSE:SHOP) is getting drawn into the suddenly negative mood surrounding tech stocks, but National Bank Financial analyst Richard Tse says pullbacks in its share price are buying opportunities.

This morning, Shopify reported its Q2, 2018 results. The company lost $24-million on revenue of $245-million, a topline that was up 62 per cent over the same period last year.

“The diversity of our revenue drivers and of our merchant base contributed to our strong revenue growth this past quarter,” CFO Amy Shapero said. “Our mission, our technology and our growth model position us, and our merchants, to thrive in the face of massive changes to retail. We built the Shopify platform to meet the many and varied needs of all types of merchants, whether they are makers or curators, entrepreneurs or household brands. This presents us with an expansive opportunity set that we will continue to invest in with a view to even greater success over the long term.”

Tse says there were positives in this quarter.

“In our view, while we believe Shopify’s Q2 results were solid with increases to forward guidance, what’s more important is what’s next and on that note, we continue to see two scaling pillars – Plus and International; both of which were at the forefront of the Company’s conference call,” the analyst says. “What we heard today were curated datapoints to suggest the momentum is building in those pillars which we see driving the next leg in this stock.”

In a research update to clients today, Tse maintained his “Outperfom” rating and one-year price target of (US) $180.00 on Shopify, implying a return of 28 per cent at the time of publication.

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Tse thinks SHOP will generate (US) EBITDA of $25.0-million on revenue of $1.05-billion in fiscal 2018. He expects those numbers will improve to EBITDA of $94.0-million on a topline of $1.44-billion the following year.

The NBF analyst cautions against getting caught up in the noise around tech valuations and focus on the long term picture.

“In the interim, we can’t ignore what’s been happening across Technology in the past week and in light of SHOP’s valuation, it should be obvious the broad market has the potential to pull the stock into all that volatility. We see that as an opportunity. While the stock is not immune to the gyrations in the sector; fundamentally, Q2 was consistent with our expectations with building optionality in the pillars noted above. Bottom line, we think the recent pullback represents another opportunity for investors with a longer-term time horizon.”