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Bull of the Day: Shopify Inc. (SHOP)

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Shopify (SHOP - Free Report) was one of the big winners in 2020, as businesses raced to boost their online sales during the coronavirus to grow and, in many cases, survive. Investors who missed out on the ride last year shouldn’t be discouraged because the e-commerce age is just getting started.

Simple, Yet Powerful…

Shopify, which was founded over a decade ago, helps businesses build, maintain, and grow their e-commerce presence. SHOP makes money from recurring subscription fees and add-ons. The firm currently offers different tiers: one that is aimed at entrepreneurs, as well as small and medium businesses, with another geared to high volume merchants and big businesses.

The Ottawa, Canada-based company’s most basic package starts with a monthly fee of $29 for sellers and a 2.9% transaction fee. SHOP has also continued to partner with influential players within tech and retail from Facebook (FB - Free Report) to Walmart (WMT - Free Report) .

Shopify’s revenue growth has been impressive, with 2019’s nearly 50% sales expansion its slowest since it went public in 2015. This helps showcase SHOP’s proven track record that had nothing to do with the pandemic shopping environment.

Shopify boasts that it helps power more than one million businesses around the world. Perhaps most importantly, the e-commerce market has miles of runway left. For instance, it accounted for roughly 14% of total U.S. retail sales in the third quarter of 2020, down from a record 16% in Q2. This is up from 11% in the year-ago period, but some might have expected the figure to be higher considering the near-perfect conditions to outperform during the coronavirus.

 

 

 

 

 

 

 

 

 

 

 

 

 

What’s Next?

SHOP has skyrocketed from around $30 in its early trading to its current price of roughly $1,140 a share. The nearby chart showcases that the e-commerce firm has blown by Amazon (AMZN - Free Report) , Etsy (ETSY - Free Report) , Target (TGT - Free Report) , and its industry over the past three years. Shopify stock also surged 185% in 2020. This run might make some investors nervous that it has come too far too fast.

Yet, its 2020 climb was been less hyperbolic than Esty, Zoom Video (ZM - Free Report) , and other pandemic high-flyers. And the stock fell over 11% to end the year after it hit a new record high before Christmas. SHOP also trades at a 20% discount to its own year-long highs at 38X forward 12-months sales. That said, its valuation still screams growth stock, which it certainly is.

Wall Street is high on the stock because it’s coming off back-to-back quarters of 97% revenue expansion. Shopify’s Q3 gross payment volume also jumped 106%, with monthly recurring revenue up 47%. More recently, SHOP said that Black Friday/Cyber Monday weekend sales grew by 76%.

Peeking ahead, Zacks estimates call for SHOP’s adjusted Q4 earnings to soar 188% on 78% stronger sales. Overall, its fiscal 2020 revenue is projected to jump 80% to reach $2.85 billion, with its EPS expected to skyrocket from $0.30 all the way to $3.71 a share. This top-line growth would easily beat the 73%, 59%, and 47% sales expansion SHOP posted in the last three years, respectively.

As many might expect, 2020 will likely, and hopefully be a hard year to replicate, given the dramatic overnight shift and deeper push into e-commerce that many businesses already made. Still, Shopify’s growth is hardly over and even with the successful rollout of various coronavirus vaccines, people will still be shopping online, and many might have discovered the convenience for the first time. 

Shopify’s 2021 revenue is projected to climb over 30% or $860 million above our FY20 estimate to reach $3.71 billion. Meanwhile, its adjusted earnings are expected to slip slightly (-5%) from our FY20 estimate. SHOP’s earnings outlook has also continued to improve recently and it has destroyed our bottom-line estimates over the trailing four quarters.

 

 

 

 

 

 

 

 

 

 

 

Bottom Line

Shopify’s positive earnings revisions help it grab a Zacks Rank #1 (Strong Buy) right now, alongside its “B” grade for Momentum in our Style Scores system. Plus, 13 of the 27 brokerage recommendations Zacks has for SHOP come in at “Strong Buy” right now, which is more than at any point over the last three months, with 14 at a “Hold.”

Clearly, there could be more near-term selling as investors take home profits after Shopify’s stellar run. Nonetheless, those with a long-term investment horizon might consider SHOP as a bet on a surefire growth industry that is still in its early days. Simply put, most businesses, big and small, must move online in order to expand their reach and thrive.  

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