The core conundrum for
investors is simply this: the business is hot, but the stock is even hotter.
The e-commerce software company is due to report June quarter financial results on July 29, and expectations are high. Street consensus is for revenues of $505 million—up 40% from a year ago – with a loss of two cents a share. Shopify’s (ticker: SHOP) first quarter sales were up 47%, well ahead of Street estimates, but the company declined to provide June quarter guidance due to the uncertainty associated with the Covid-19 pandemic and the global economic downturn.
Shopify shares have rallied 40% since reporting financial results on May 6, and the stock has been even higher. But even bulls on the company’s fundamentals have become a little concerned about valuation, with the stock trading at about 1,900 times projected 2020 profits and about 54 times current year sales estimates.
Roth Capital analyst Darren Aftahi on Tuesday raised his estimates on Shopify for both 2020 and 2021, citing “strong underlying growth” from surveyed customers. For 2020, he now sees revenue of $2.18 billion, up from $2.04 billion; for 2021, he now sees $2.90 billion, up from $2.63 billion.
But the analyst maintains his Neutral rating on the shares, though, and his upwardly revised price target is $800, up from $750, but still well the recent stock price.
“While our outlook improves, and Shopify and its stock should continue to benefit from e-commerce tailwinds from Covid-19, valuation remains very stretched,” he writes.
Shopify shares on Tuesday are down 3.8%, to $971.39.
Write to Eric J. Savitz at email@example.com