Can SHOP stock can still make you big money?

After a second quarter that was cheered by the streets, shares of Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials NYSE:SHOP) soared, but can the stock still make you money?

Yes, says National Bank Financial analyst Richard Tse, who in a research update to clients August 7, maintained his “Outperform” rating and price target of (US) $100.00 on SHOP, implying a return of 50.6% at the time of publication.

On August 7, SHOP reported its Q2, 2024 results. The company posted gross profit of $1.0-billion on revenue of $2.0-billion, a topline that was up 21% year-over-year.

“Our Q2 results make it clear: Shopify is rapidly strengthening its position as a leading enabler of global commerce and entrepreneurship,” said Harley Finkelstein, President of Shopify. “More and more merchants across the world are putting their trust in Shopify’s unified commerce operating system to fuel growth and simplify complex operations. We’re fully committed to executing our growth strategies and delivering immense value to our merchants for years to come.”

The analyst summarized the development.

“Shopify reported solid FQ2 results (Figure 1) with consolidated revenue growth of +21% Y/Y (+25% Y/Y ex. Logistics) and +600 bps Y/Y of margin expansion (Adj. Operating income margin),” Tse wrote. “Altogether, the shift towards increasing capital efficient growth is what’s helping fuel the re-rating of the stock under a market that’s also changed in terms of how valuations are ascribed. For Shopify, even traditional metrics corroborate that execution with ROIC of 14% (+691 bps Y/Y) and FCF margin of 16% in FQ2’24 (+1,000 bps Y/Y) vs previous guidance of flat FCF Q/Q margins (12.5% in FQ1). With respect to the notable KPIs, GMV was up 23% Y/Y (in CC) to $67.2 bln, “higher-tier” MRR (formerly known as Shopify Plus) as a % of total was 30.8% (+130 bps Y/Y), take rate (MS Revenue / GMV) was down 1 bps Q/Q while the attach rate (Total Revenue / GMV) was down 2 bps Q/Q care of a higher mix of revenue from payments, lower non-cash revenues from strategic partnerships, and lower shipping revenue. More important in our view is the Company’s newer merchant services (e.g., Markets, Capital, Tax, etc) are beginning to surface outsized value with MS gross profit dollars +22% Y/Y outpacing MS revenue growth (+19% Y/Y). Beyond that, Shopify continued to gain share in the U.S. eCommerce market with a share now >10% vs approx. 10% announced during its 2023 investor day. Bottom line, the FQ2 results were consistent with our recent preview and investment thesis”

Tse thinks SHOP will post Adjusted EBITDA of $1.35-billion on revenue of $8.64-billion in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $1.79-billion on a topline of $10.35-billion the following year.

“Bottom line, we continue to believe Shopify is fortifying its market leading position and barriers to entry while expanding its TAM in new market segments under growing operating leverage,” the analyst added.