The recent downturn in investor sentiment on growth and tech stocks has knocked down many names off their lofty valuations. This trend, coupled with slowdowns in ecommerce, have dropped Shopify Inc. (SHOP) more than 49% from its late November peak. The point-of-sale merchant retail platform is slated to post its upcoming earnings pre-market on Wednesday February 16, and meanwhile some analysts have been upgrading it.
One of these is Matthew Pfau of William Blair, a bullish voice on the discounted e-commerce company who noted that the pullback in share price has created an attractive buying opportunity. While shares have continued to come down and a bottom in price is nearly impossible to call, Pfau expects the stock to recover the lost ground in the long-term.
He went on to state that “over the long term we believe Shopify should be able to maintain a premium valuation given its growth prospects, great execution, and dominance in the e-commerce software space.”
The analyst upgraded his rating on the stock to Buy, but did not assign a price target.
He was encouraged by Shopify’s expansion in enterprise level businesses, its international reach, and its expanding fees collected from its merchants. These factors are some of the reasons why Pfau expects SHOP to increase its revenues by nearly one third over the next few years, outpacing the broader e-commerce industry.
The company has invested considerably in products such as “point of sale, capital, Shop Pay integrations, shopping/fulfillment, and social commerce,” Pfau explained. He expressed his confidence in Shopify, arguing that it provides the best e-commerce platform for small- and medium-sized businesses.
Pfau did, however, explain the risks to his investment theory. For one, near-term market uncertainty may continue to drag down shares, particularly within tech and SaaS stocks. Moreover, persisting COVID-19 disruptions have been challenging for shipping and more labor-intensive operations, and many of these impacts can set in without warning and last for unpredictable time frames.
On TipRanks, SHOP has an analyst rating consensus of Moderate Buy, based on 13 Buy and 10 Hold ratings. The average Shopify price target is $1,387.11, reflecting a possible 12-month upside of 62.43%. SHOP closed trading Friday at a price of $854 per share.
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