Canadian e-commerce company Shopify (Shopify Stock Quote, Chart TSX, NYSE:SHOP) has seen its share price jump over the past couple of weeks, with the stock looking like it could soon get back to an all-time high of C$232.65 set a few months ago.
And while questions loom over whether this growth stock has much of a runway left, Mohsin Bashir of JM Fund Management says that as long as it keeps impressing with its quarterly revenue numbers, the sky’s the limit for Shopify.
SHOP was up again in midday trading on Thursday, as the stock continues to make quick work of the ground it lost since its second quarter earnings report on July 31. For its Q2, Shopify had kept up its strong performance with revenue of $245 million, up from $151.7 million for last year’s second quarter, yet investors apparently reacted negatively to a slowing growth rate both in the top line (62 per cent year-over-year growth compared to 68 per cent during Q1) and in gross merchandizing volume (GMV), which grew by 56 per cent compared to last year’s Q2 GMV growth of 74 per cent.
But that slowdown only tells part of the story, says Bashir, chief operating officer at JM Fund Management, who claims that for a still-growing business like Shopify, a consistent uptick in revenue is the more important element.
Shopify stock could “grind higher”…
“There is some choppiness with regards to its EBITDA growth,” says Bashir, to BNN Bloomberg. “Sometimes, it’s a surprise in excess of 100 per cent and sometimes less. The question is, is the recent rebound sustainable?”
“That will be dependent on whether or not you’re going to be able to surpass analysts’ expectations on a quarterly basis and keep that momentum rolling,” he says. “Especially nowadays, most of the investment community and even the analyst community are looking more and more to the top line, especially with businesses that are not very profitable yet or are still growing into themselves. So you’ll want to see a positive surprise on a top line revenue basis and so far Shopify over the long term has been tracking a positive surprise of four to six per cent on its revenues.”
“If that continues on, then, yes, you could see [the stock] grind higher,” he says. “From a technical perspective, if you’re looking at the chart, it has bounced off its 200-day moving average, which is a positive. What that means is that momentum is still intact.”
So far in 2018, even with its ups and downs, Shopify has posted a return of 69 per cent. Compared to the big US tech companies, that’s better than Alphabet’s 13 per cent return, Apple’s 29 per cent and even Amazon’s 66 per cent. Among the so-called FAANG stocks, only Netflix has outperformed SHOP with an 87 per cent return rate.