Shopify has way more upside potential, National Bank Financial says

Following the company’s third quarter results, National Bank Financial analyst Richard Tse is still very expansive about the opportunities of Shopify (Shopify Stock Quote, Chart TSX, NYSE:SHOP) going forward.

This morning, Shopify reported its Q3, 2018 results. In the third quarter, the company lost $31.4-million on revenue of $270.1-million, a topline that was up 58 per cent over the same period last year.

“Solid execution and continued rapid growth drove our strong results in the third quarter,” CFO Amy Shapero said. “We relentlessly shipped new products and features to prepare our merchants for their biggest selling season of the year, merchants’ GMV expansion was well ahead of e-commerce growth overall, and our merchant base continues to expand at a healthy clip. We’re well positioned to close 2018 and enter 2019 with excellent momentum.”

Tse reiterates a theme that he has been pressing on with regards to Shopify -that even though the company has earned a high profile in a relatively short period of time, he believes it is still very early in the company’s journey. The bottom, the analyst says, is that if you can look long term there is “way more” upside potential in the Ottawa-based e-commerce player.

Shopify Stock Still Cheap, Tse Says

“We continue to believe Shopify is early in a rapidly growing e-Commerce market,” Tse says. “Like other disruptive leaders, we believe the upside in the stock comes from the underlying fundamental growth as we look beyond the short term. As we take that longer-term view, we balance the short-term valuation with the fundamental progress covered in our note This Might Surprise you… where we compare Shopify’s growth trajectory next to other successful high-profile Technology names. While we’re taking our estimates up on the better than expected outlook, we’ve balanced our optimism with a slightly higher discount rate in light of the market backdrop.”

In a research update to clients today, Tse maintained his “Outperform rating and one-year price target of (US) $180.00 on Shopify, implying a return of 33 per cent at the time of publication.

Tse thinks SHOP will generate EBITDA of $28.0-million on revenue of $1.07-billion in fiscal 2018. He expects those numbers will improve to EBITDA of $78.0-million on a topline of $1.48-billion the following year.