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Is there more upside in Shopify’s share price?

Shopify's share price performance this year has been nothing short of stratospheric. And that’s saying something considering the coronavirus has seen investors flee markets the world over. 

While Shopify’s [SHOP] share price wasn't immune from the volatility - seeing a downturn lasting from late February until mid-March - it has certainly bounced back, soaring over 121% since 21 March. Last week alone, the share price gained 7.5%, opening the week at $700 before closing at $824.28. And between 24 April and 22 May, Shopify lumped on $201 in value. 

Powering this share price reversal were Q1 earnings that thrashed Wall Street expectations. In the latest quarter, Shopify posted earnings of $0.19 per share, beating an expected loss. Revenue of $470 million also beat expectations, up over 47% compared to the same quarter last year. 

But with Shopify’s share price trading just under its all-time high, is there any more upside left?

 

 

Why should investors care?

Product pipeline 

Shopify’s phenomenal growth has been driven by an ecosystem of products that help small businesses with everything from taking payments to setting up online shops.

Even more products were announced at Shopify’s most recent developer conference.  The most eye-catching was Shopify Balance - a merchant account with no fees and no minimum balances.  Also new is Shop Pay Installments, which gives customers the option to pay for purchases in instalments. 

 

More local businesses going online

While a lot of local businesses can’t currently open physical stores, there’s nothing stopping them opening online ones.

Shopify saw a 62% increase in new stores created on its platform in the six weeks to 24 April, compared to the prior six weeks. In the same time period, it saw a 176% increase in local orders as customers supported local businesses.

176%

Increase in local orders in the 6 weeks to 24 April

  

“Previously, commerce was about the infinite selection you can get,’ says Shopify chief product officer Craig Miller ‘Increasingly now it’s about supporting the merchants that they know and they love that are nearby." 

 

Time to buy Shopify?

Such momentum in the share price isn't just limited to 2020. Market Insider points out that the company's share price has climbed an awesome 4600% since it went public five years ago on 21 May 2015. Back then, Shopify's share price started at $28 a pop. Five years later to the day, the stock closed at $802.35.

4600%

Shopify's share price rise since its IPO in 2015

  

Given how far ahead of analyst estimates the stock is trading, investors might do well to wait for a discount on the stock. An average analyst price target of $512.55 is a hefty 59% below the current share price. Of the 29 analysts tracking the stock on Yahoo Finance, 18 rate it either a Strong Buy or a Buy. 

One obvious area of concern is Shopify’s growing losses. In 2019, net losses came in at $124 million, almost double that of the $64 million loss seen the year before. While overall revenue might be increasing, shareholders will want to see some kind of plan towards profitability. Relentlessly releasing features might maintain interest in the stock, but any slip up in a product release could hurt investor confidence.

Whether Shopify’s share price will see a correction given the current shift to e-commerce is debatable. In the long-run Shopify’s product pipeline and ability to respond to change could see it eventually become a high-value stock.

 

Market Cap$89.324bn
Operating Margin (TTM)-9.78%
EPS (TTM)-1.15
Quarterly Revenue Growth (YoY)46.70%

Shopify share price vitals, Yahoo Finance, 28 May 2020

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