Yes, Shopify is expensive. Yes, you should own it anyway: PI

Yes, it’s expensive. No, that doesn’t mean you shouldn’t own it.

That’s the message from PI Financial analyst Gus Papageorgiou on Shopify (Shopify Stock Quote, Chart, News NYSE:SHOP), a stock the analyst says is one of his top picks for the 2020.

Papageorgiou, while acknowledging that SHOP is far from a value play, wondered aloud as to whether some are still underestimating it.

“Current expectations are for SHOP to deliver ~32% growth in 2020,” the analyst noted. “That is impressive for a software company doing US$1.5b in revenue. However, we believe these numbers could prove conservative. For BFCM (Black Friday Cyber Monday) Shopify delivered YoY revenue growth of 61%. Current expectations are for the Company to deliver Q4 GMV growth of ~38%. We believe that could prove conservative in light of the success of BFCM.”

The analyst said there is a pretty wide upside range -he pegs it at 32% to 48%- for Shopify in 2020.

“We are currently looking for revenue growth of 32% for 2020 with revenue coming in at US$2.1b, which is in line with consensus. However, based on the strong performance during BFCM, if we adjust our Q4 estimates and roll forward our more aggressive assumptions into 2020 we could see numbers as high as US$2,369m. That would deliver revenue growth of 48% for 2020 – ahead of expectations. If the Company were to bank the extra growth (it has not done so in the past) we would see EPS as high as $2.03,” he noted.

In a research update to clients today Papageorgiou maintained his “Buy” rating on Shopify, assigned “Top Pick” status to the stock and raised his one-year price target on it from (US) $420 to $454 (C) $563 to $590).

The analyst thinks SHOP will post EBITDA of $70.2-million on revenue of $1.56-billion in fiscal 2019. He expects those numbers will improve to EBITDA of $159.6-million on a topline of $2.05-billion the following year.

“The fundamentals remain solid and Shopify continues to execute well but valuation remains a concern, Papageorgiou concluded. “The shares are trading at over 20x forward 12 month EV/Sales. We do not believe this is a sustainable multiple moving forward and will almost certainly see compression over time. Our new target price is currently premised on a 18 (vs 17 previously) target multiple and we will likely lower that as we move forward. We have also rolled forward our time line by one quarter given the market is already discounting a strong Q4.”