Technology

Analysts Chasing Shopify Into Stratosphere

If one great technology and services company deserves recognition in 2019, it has to be Shopify Inc. (NYSE: SHOP). With a new suite of services to better assist online merchants of all sizes, its shares surged to an all-time high on Wednesday. Thursday brought some additional strength, but while many analysts are raising their price targets, concerns about valuation are appearing.

It’s beginning to look like Shopify is going to “out-Amazon” the great Amazon. Its new suite of services allows merchants to target more international markets with language services, custom video services, and foreign exchange to sell and instantly convert to dollars. For online merchants, it is also growing a major fulfillment center initiative with fulfillment and software partners in Nevada, California, Texas, Georgia, New Jersey, Ohio, and Pennsylvania.

Wednesday’s news helped Shopify shares surge about 25% above what had been the prior consensus analyst target price from Refinitiv. The $37 billion market cap values Shopify at about 24.5 times expected 2019 revenues (or 18.5 times expected 2020 revenues. Refinitiv’s consensus analyst earnings estimates of $0.57 per share in 2019 and $0.95 per share for 2020 give forward earnings valuations of 573 and 344, respectively.

24/7 Wall St. tracked multiple analyst calls on Shopify from Wednesday, June 20. There are many price-target hikes that have been seen, but this hyper-growth outfit just keeps rallying above and beyond what analysts can keep up with on their price targets.

CIBC issued the only valuation downgrade on Shopify. While it lowered its rating to neutral from outperform, it still hiked its price target up to $350 from $260.

Other firms maintained their existing ratings, with price-target data as follows:

  • Robert W. Baird has an outperform rating and raised its target to $360 from $269.
  • Rosenblatt Securities has a buy rating and raised its target to $395 from $295.
  • UBS has a buy rating and raised its target to $395 from $295.

It is also important to see what analyst calls have been made in recent weeks.

  • On June 7, Goldman Sachs initiated coverage of Shopify as neutral with a $264 target price.
  • On June 6, KeyBanc Capital Markets reiterated its overweight rating and raised its target to $300 from $275.
  • On May 14, Morgan Stanley downgraded Shopify to equal weight from underweight, but the firm did raise its target price to $209 from $173.
  • On April 30, BofA Merrill Lynch maintained its underperform rating, while raising its target to $185. The weak rating at the time was due to moderating economics of its customers.

Shopify shares were last seen up another 1.2% at $331.00 on Thursday, the new high was last seen at $338.94 and the old consensus analyst target price was down at $261.83.

While this is a great company that is growing and continues to deliver upside and massive growth, it is definitely not a stock for the faint of heart. When the day comes that the mega-growth begins to normalize, which, admittedly, may take years to occur, the re-rating that will follow is likely to be painful. That said, many analysts still see Shopify shares climbing even higher.