A Look at the Valuation

As if Covid never happened, Shopify (SHOP) shares have now retreated all the way back to pre-corona levels. One of the pandemic’s prime beneficiaries, this former ecommerce highflyer has somewhat inevitably been unable to sustain the huge growth sprout and investors have shown no mercy. Since the turn of the year, the stock has shaved 75% off its value with the latest leg down coming off the back of a disappointing quarterly update.

Shopify missed on both the top-and bottom-line. Revenue increased by 21.4% year-over-year to reach $1.2 billion, coming in below the analysts’ forecast of $1.25 billion. Adj. EPS of $0.20 fell short by some way of the $0.65 consensus estimate.

The company stated that an earlier-than-expected move to offline retail and travel which started in February compared to late March/April last year hurt business, while to a lesser degree, record inflation sent consumers toward the discount retailers’ till.

Considering the performance of other e-tailers in this earnings season, in addition to the tough comps and macro headwinds, Canaccord analyst David Hynes is not really surprised with the uninspiring results.

That said, the addition of Deliverr, the fulfillment solution business Shopify agreed to acquire for $2.1 billion in the quarter and which will more than double the size of SHOP’s fulfillment team, should help its case.

“While Deliverr will be dilutive to financial results in its first year,” says the 5-star analyst, “the key takeaway here is that the business is asset-light, tech-driven, and should pretty significantly accelerate SHOP’s ability to execute against its end-to-end fulfillment vision.”

Moreover, taking an impartial view, Hynes thinks given the huge sell-off, there might be an “opportunity to get involved in the stock at what could be close to trough multiples.”

“What will be interesting longer term is how investor thinking on valuation might evolve as Shopify’s fulfillment volumes start to scale more significantly, which should be nicely additive to revenue growth, but dilutive to gross margins,” Hynes explained. “We’re probably still a couple of years away from this playing out, but it’s something we think about.

Story continues

While Hynes signals his interest in a “category-leading asset” going for cheap, still awaiting a “bottom,” the analyst stays on the sidelines with a Hold rating, and price target of $515 (lowered from $800). Still, there’s upside of 51% from current levels. (To watch Hynes’ track record, click here)

15 other analysts join Hynes on the sidelines, and with another 15 Buys and 2 Sells, the stock has a Moderate Buy consensus rating. The outlook is more conclusive where the average price target is concerned. The figure clocks in at $691, which suggests returns of ~103% could be in the cards over the next 12 months. (See Shopify stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.