This investor loves Shopify right now

Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials TSX:SHOP) shares may offer a compelling entry point following their recent pullback, according to First Avenue Investment Counsel Chief Investment Officer Brian Madden, who spoke on BNN Bloomberg’s Market Call on February 9.

Madden described Shopify as a “great homegrown Canadian success story” and “the gold standard in e-commerce enablement services,” noting that while the company initially focused on small- and medium-sized businesses, it is increasingly serving larger enterprises through tiered subscription pricing and expanded merchant solutions.

In addition to monthly recurring subscription fees for storefront enablement, Shopify generates revenue from add-on services such as payments, working capital financing and artificial intelligence tools. Madden highlighted the company’s expanding partner network and international growth strategy, as well as long-term secular tailwinds in e-commerce adoption.

“Ongoing innovation is enabling ever broader merchant use cases,” he said, adding that this has helped Shopify increase its “take rate,” the percentage of gross merchandise value processed on the platform that it captures as revenue, from just over 1% in earlier years to closer to three per cent today.

All of this supports what Madden expects will be a 33% compounded annual earnings growth rate over the next three years.

While he acknowledged the stock’s premium valuation, currently trading at approximately 58 times forward earnings, Madden noted this represents a discount to its five-year average multiple of about 70 times.

“You can say the stock is priced dear, and it always is,” he said. “But we think it’s compelling relative to the earnings growth opportunity in front of it. This 40% pullback is the steepest we’ve seen since the cycle started in 2022. So good entry point.”

Shopify shares have declined 4.90% over the past 12 months and 3.29% over the past five years. Of the analysts covering the stock, 34 rate it “Buy,” 19 “Hold,” and one “Sell,” with a consensus price target of $242.50.

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