Shopify upgraded to “Buy” at Citi

The stock has been flat since November, but Citi analyst Tyler Radke thinks there is now money to be made on Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials NYSE:SHOP).

As reported by The Globe and Mail, Radke April 28 raised his price target on SHOP from (U.S.) $93.00 to $105 while upping his rating on the stock from “Neutral” to “Buy”.

The analyst said he has typically taken a great company, not so great stock view of SHOP given its lofty valuations. But he now says both are on the same page.

“We’ve always admired Shopify as a company, given its strong product quality, unique business model spanning across software/payments/e-commerce etc., and exposure to an enormous e-commerce TAM [total addressable market] ($849-billion theoretical TAM from investor day),” Radke wrote. “That said, our investment view has historically been less constructive as we’ve struggled with valuation, its lower gross margins, questionable capital allocation decisions, and underwriting the durability of growth. Since our launch of coverage in July of 2020 with a neutral/high-risk rating, shares have fallen 23 per cent vs. the IGV’s [iShares Expanded Tech-Software Sector ETF] 42-per-cent rise. We believe the company has addressed many of the margin/profitability issues following the divestiture and cost-cutting actions in 2023. With the recent pullback in shares (20 per cent off February highs) we are upgrading the stock to Buy/High Risk. Our positive view is supported by three key points: 1) Solid set-up into FQ1 results; 2) Increased confidence in growth durability of Merchant Solutions following our deep dive; 3) More reasonable valuation on a growth-adjusted basis with EPS/FCF estimated to compound 34/44 per cent over the next five years, respectively.”

SHOP will report its Q1, 2024 results on May 8 and the analyst says he expects good things.

“First, heading into 1Q24 we are expecting healthy upside driven by a more resilient eCommerce backdrop in 1Q, which is supported by alternative data including incrementally positive non-store and SMB retail spending trends, positive commentary from our partner/ customer checks, and Shopify’s increasing share gains amongst top commerce players,” Radke said. “Channel checks from employees, customers, partners, and competitors highlighted Shopify is moving aggressively upmarket, its pace of innovation is strong, and eCommerce and spending amongst SMBs has increased in 1Q and through April. We also see upside to margins given conservative opex guide, efficiency gains, and leverage in the model.”