It has arguable the biggest name in Canadian tech since it IPO’d, but Paradigm Capital analyst Kevin Krishnaratne says the street is still underestimating Shopify (TSX, NYSE:SHOP).
In a special report to clients this week, analysts at Paradigm selected their top picks for the upcoming third quarter. Krishnaratne says the Ottawa-based ecommerce player is his choice.
“Shopify is in the very early stages of disrupting retail, with +650K customers on its platform, and revenue and gross profits growing ~70%,” the analyst notes. “Trends should continue to benefit from recent initiatives, such as Shipping, International Payments and new channel launches.
Krishnaratne has a “Buy” rating and a one-year price target of (US) $160.00 on Shopify, implying a return of 6.3 per cent at the time of publication. That’s a thin return for a top pick, but the analyst cautions that an upward revision may be in the cards.
“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$160.00 target, which is based on 10.2x 2019e EV/Sales, likely also has room for upward revisions on the back of earnings events and new product releases.
Krishnaratne thinks Shopify will generate Adjusted EBITDA of (All figures USD) $52.6-million on revenue of $1.05-billion in fiscal 2018. He expects those numbers will improve to EBITDA of $140.3-million on a topline of $1.39-billion the following year.
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