The sector may not have the mojo it did last year when everyone and their dog (especially their dogs) were buying all their stuff online, but e-commerce is here to stay and should continue to take bites out of bricks n’ mortar for years to come. And those tailwinds are supporting a number of strong candidates in the space from a Canadian perspective, including these three, all of which come with Buy ratings from analysts.
Market Capitalization: $212.7 billion
2020 Revenue: $2.929 billion
2021 Year-to-date return: +18 per cent
We start with the big daddy of them all. If not a household name, Shopify is certainly known to all budding entrepreneurs as well as retail and institutional investors. The largest company on the TSX by market cap, Shopify has found its way into portfolios of all sorts even as the stock continues to trade at high multiples on a comparative basis.
But Shopify is bringing the goods quarter after quarter, especially over the past two years where its platform has seen accelerated growth during the pandemic, leaving investors to wonder whether SHOP really can deliver on all that growth baked into its share price. As well, Shopify’s share price has taken a tumble in recent weeks, wiping out about 20 per cent of its value and likely inducing some hesitation in potential investors.
One fan is analyst Richard Tse of National Bank Financial who sees Shopify’s continued success to lie in its ability to innovate and deliver new options and services for its merchants big and small. Tse maintained his “Outperform” rating for Shopify after the company’s most recent quarterly results in October, along with his unchanged target price of US$2,000 per share, which represented a projected one-year return of 36.8 per cent.
“The reality is that despite the success to date, we continue to believe many of the growth drivers have yet to fully scale for this name with some meaningful ones being International and Shopify Plus,” wrote Tse in an update to clients October 28. “And while those growth drivers are ones we’ve been highlighting for some time, the company continues to add even more drivers with the latest wrapped up under a financial services banner (Shop Pay, Instalments).”
“Bottom line, while the Q3 results were shy of expectations, the stock is looking more at what a normalized future looks like and on that basis, the growth runway remains promising,” Tse said.
(All figures are in Canadian dollars except where noted otherwise and all target prices and projected returns are stated as of the date of the respective analyst’s report.)
2. EMERGE Commerce (EMERGE Commerce Stock Quote, Charts, News, Analysts, Financials TSXV:ECOM)
Market Capitalization: $62.8 million
2020 Revenue: $9.2 million
2021 Year-to-date return: -26 per cent
From the huge and established of public companies to the small and new, EMERGE Commerce just joined the TSX Venture Exchange a year ago and while the first 12 months haven’t been a smashing success for the stock, the company continues to grow its stable of brands in the direct to consumer (D2C) market in North America with names like TruLOCAL, JustGolfStuff.ca, WagJag.com and BattlBox.com.
Earlier this month, EMERGE reported record Gross Merchandise Sales for the month of November on its various platforms and said it’s expecting the Q4 to be its largest yet in terms of GMS, sales and EBITDA.
Commenting on EMERGE’s results, Raymond James analyst Steven Li said the fourth quarter is looking good so far.
“TruLOCAL’s sales remain substantially higher than pre-pandemic level. On the golf segment, JustGolfStuff did not see any major disruption from supply chain issues given its low dependency on inventory supply from China and inelastic demand from customers (volumes were up despite increased cost) — all good indications of stickiness in ECOM’s verticals,” Li wrote.
The analyst maintained an “Outperform” rating on EMERGE and $2.25 target price in a December 8 report, which translated to a one-year return of 240.9 per cent.
3. Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials TSX:LSPD)
Market Capitalization: $7.5 billion
2020 Revenue: $221.7 million
2021 Year-to-date return: -42 per cent
Montreal-based payments and e-commerce platform Lightspeed has dealt with a whole lot of pain of late, enough to turn what just a few weeks ago seemed like a great year into one likely to end under water. Such is the way for high-growth names, a label which seems to fit the bill for LSPD. The company has been busy in recent years acquiring businesses and extending its reach, with the result being huge year-over-year increases in revenue on a quarterly basis. But a short report in September followed by a poorly received third quarter has tanked the stock.
National Bank’s Tse still has faith, however, with the analyst saying in a November 23 report that recent meetings with management re-confirmed his positive take on the company’s business and outlook for the stock. At the same time, Tse cautioned that it could be a while before LSPD rights itself.
“Given the absence of any imminent catalysts discussed at this event, we expect a continuing overhang in the stock care of a short report released late September. In our view, that overhang will only be alleviated with (continuing) execution as we look ahead over the next 12+ months (of note, we believe the Company will continue to execute). In the short term, we believe the stock will be subject to continued pressure given the absence of catalysts. But for those with a longer time horizon, we believe the current stock price represents an opportunity,” Tse wrote in his report.
With the update, Tse maintained his “Outperform” rating and US$120.00 target price, which represented a projected one-year return of 125.1 per cent.
Disclosure: EMERGE Commerce is an annual sponsor of Cantech Letter.