Shopify is still a relatively cheap stock, says Mackie Research

E-commerce company Shopify (Shopify Stock Quote, Chart TSX:SHOP) this week got a target price raise from Mackie Research’s Nikhil Thadani who says that despite its strong performance over January the stock is trading at a slight discount to its high-growth SaaS peers.

“SHOP trades at ~8.8x 2020 Sales, based on our initial 2020 estimates,” Thadani said in an update to clients on Tuesday. “In effect, SHOP trades at lower multiple, given the company’s history of revenue outperformance. High growth SaaS names trade at 9.4x 2020 Sales.”

Shopify released its fourth quarter and year end results on Tuesday, coming in with Q4 revenue of $344 million, which was above the consensus expectation of $328 million and above Thadani’s $339 million estimate (and above the high end of the company’s own guidance). The company generated EBITDA of $26 million, which compares to Thadani’s $28 million estimate. (All figures in US dollars.)

“No other SaaS company has crossed the $1 billion-dollar revenue mark at a faster growth rate than Shopify has,” said Tobi Lütke, Shopify’s CEO, in a press release. “This milestone is significant due to the backdrop: Shopify allows people to partake in the entrepreneurial world who would otherwise not be able to do so. We have been focused on growing this market for the past 12 years even though a lot of people told us that this isn’t a valuable business model. We let the results speak for themselves.”

Thadani says that he likes the odds on Shopify hitting $2 billion in sales by the end of 2020.

“SHOP will provide 2020 guidance in a year, but based on the company’s history of revenue outperformance, we expect 2020 should approach and potentially exceed ~$2 billion as the company appears to be aggressively investing in growth initiatives (expect more details at the Unite conference in a few months),” Thadani says.

The analyst is now forecasting 2019 EBITDA of $77.7 million on sales of $1,479.9 million and 2020 EBITDA of $118.8 million on a top line of $1,972.0 million. He is maintaining his “Buy” recommendation with the new target of $210 (was $170), implying a 12-month return of 19.6 per cent at the time of publication.