Shopify(SHOP:NSD) RBC raises target 20 percent on valuation

STA Research
by: STA Research

RBC Bank’s analyst, Mark Mahaney today raised his target on Shopify to $1000 from $825, a 20 percent increase.  RBC kept their Outperform rating on the stock intact.

The company’s stock price has doubled since the beginning of the year, but according to Mahaney,  investors are  discounting Shopify’s market size, and it’s dominance in the sector and the size of it’s operating margin. The analyst believes that  consumer buying trends have been forever changed as a consequence of the pandemic. E-commerce has been the preferential form of shopping and as such believes the valuation metric needs to accommodate this change in principle, causing his sharp increase to the firm’s target on the stock.”  Mahaney believes that Shopify’s  position warrants a premium valuation multiple of 28 times their expected sales.

STA Research(stocktargetadvisor) has a average target of $592 on the stock, and a consensus Buy rating. STA’s view of the stock is Neutral with a score of 5 out of 10, where 0 is very bearish and 10 very bullish.

What to like:
High market capitalization
This is one of the largest entities in its sector and is among the top quartile. Such companies tend to be more stable.
Superior risk adjusted returns
This stock has performed well, on a risk adjusted basis, compared to its sector peers(for a hold period of at least 12 months) and is in the top quartile.
Positive cash flow
The company had positive total cash flow in the most recent four quarters.
Superior Revenue Growth
This stock has shown top quartile revenue growth in the previous 5 years compared to its sector.

What to not like:
High volatility
The total returns for this company are volatile and above median for its sector over the past 5 years. Make sure you have the risk tolerance for investing in such stock.
Overpriced compared to book value
The stock is trading high compared to its peers median on a price to book value basis.
Overpriced on cash flow basis
The stock is trading high compared to its peers on a price to cash flow basis. It is priced above the median for its sectors. Proceed with caution if you are considering to buy.
Low Earnings Growth
This stock has shown below median earnings growth in the previous 5 years compared to its sector


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