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Are Canadian tech stocks (including Shopify) actually still undervalued?


Shopify StockThose high-flying Canadian tech stocks? National Bank Financial analyst Richard Tse has crunched the numbers and concluded that, for some cases, at least, valuations are not that stretched.

Tse issued an industry research note to clients on Monday in which he raised his target on Docebo (Docebo Stock Quote, Chart, News TSX:DCBO), Shopify (Shopify Stock Quote, Chart, News TSX:SHOP) and Real Matters (Real Matters Stock Quote, Chart, News TSX:REAL), arguing that his reassessments point to strong growth on a longer-term horizon.

Since the start of the COVID-19 pandemic, the gains are truly staggering on a number of Canadian tech names. From the beginning of the year, Kinaxis is up 91 per cent, Real Matters is up 123 per cent, Docebo is up 117 per cent and Shopify is up a whopping 153 per cent.

Real Matters

And while the gains in technology stocks worldwide can be at least partially explained by the move to work-from-home environments brought on by the COVID-19 pandemic, Tse said it’s hard not to do a double-take.

“The reality is if we take the stock price increases and the respective valuations in isolation, it would most certainly be reasonable to say they’re looking stretched on short-term numbers – we’d be foolish not to acknowledge that,” Tse said.

“…In an unprecedented time and when we pair that with material and lasting structural changes, we think there’s (still) upside across many of our coverage names…”

“Yet, we’re obviously in an unprecedented time and when we pair that with material and lasting structural changes, we think there’s (still) upside across many of our coverage names for those investors with a longer-term view,” he said.

In his report, Tse argued that while the traditional flight to safety during uncertain times has seen investors load up on defensive names with stable and recurring revenue, this time around has been different, with the market sensing a structural change going on in the way businesses and societies will be developing for the foreseeable future, prompting investors to bet on those tech companies helping to enable that paradigm shift.

In fact, Tse contends that the market is now pricing in longer-term assumptions on names like Shopify and looking at the long-term addressable markets for these companies rather than focusing on more near-term projections. From that perspective, Shopify’s gains don’t look so out of whack.

Tse continues to like Shopify, which he now rates as “Outperform” with a target of US$1,250 (previously US$850.00), saying that he’s revised upwards his expectations for scaling growth in the company’s international, enterprise and fulfilment segments, along with the accelerated shift towards e-commerce.

Canadian tech

“We continue to believe Shopify is in the early stages of a market that’s structurally changing. We believe Shopify remains a leading e-Commerce disruptor and we believe upside in the stock will come from a number of different incremental growth drivers noted above,” Tse wrote.

On mortgage lending and insurance platform Real Matters, the analyst is keeping his “Outperform” rating and raising his target from $25.00 to $40.00, saying he likes the risk-to-reward profile on REAL and sees incremental growth through the company’s title and close segment, a potential push into data and its appraisal business.

Cloud-based learning platform Docebo also got an upgrade, with Tse maintaining his “Outperform” rating but moving his target from $23.00 to $55.00. The analyst likes Docebo’s place in the shift to work-from-home environments and sees structural changes accelerating his mid-term growth assumptions.

As of publication date, Tse’s new targets for Shopify, Real Matters and Docebo represented projected 12-month returns of 21 per cent, 35 per cent and 33 per cent, respectively. (All figures in Canadian dollars unless where noted otherwise.)

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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