Shopify Stock Forecast: Why Shopify Has Bloated Valuation

motek 1The Shopify stock forecast article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary

  • There’s an ongoing global pandemic and yet Shopify touts a YTD price return of 86.77%. This is in spite of Shopify’s continuing net losses.
  • The rapid ascent of SHOP this year has given it bloated valuation ratios. This goes to show that investors strongly believe in the momentum growth potential of Shopify.
  • Shopify now touts a TTM Price/Valuation ratio of 49.21. This is much higher than Adobe’s 16.31. Adobe is the parent firm of Shopify’s rival, Magento.
  • The super optimism over SHOP is due to its outstanding 5-year revenue CAGR of 69.48%. Profitability will eventually come to Shopify once it reaches peak maturity.
  • Shopify has a healthy balance sheet. Its total cash is $2.36 billion and has no debt. Shopify can therefore a few more quarters of negative levered free cash flow.

I agree that Shopify’s (SHOP) stock is now trading under bloated valuation ratios. The universal super optimism over Shopify has given its stock a YTD price return of more than 86%. This feat is in spite of the ongoing pandemic. Shopify also remains unprofitable. Shopify’s Q1 earnings report last May 6 showed it did a 46.77% year-over-year increase in its revenue of $460 million.

(Source: Seeking Alpha Premium)

The chart above shows SHOP has grossly outperformed the information technology sector’s median price return performance. You may consider taking profits now but I still am endorsing SHOP as a buy. I’m taking into consideration that SHOP’s monthly technical indicators and moving averages are still endorsing it as a buy. Relatively overvalued stocks like SHOP can still be worth buying because of the market’s growing optimism for them.

(Source: Investing.com)

It’s Never Too Late To Join The Money Train

Shopify’s big gains over the last 12 months (almost +87%) could make us think that its already too late to take a position. However, my fearless forecast is that its strong revenue growth rate during this pandemic period will keep attracting more bullish investors. The more investors that gets impressed by its high double-digit growth revenue growth, the bigger chances that SHOP can zoom up higner this year. My one year PT for SHOP is $850. My price target is reasonable. The AI-driven prediction system of WalletInvestor has a 1-year PT of  $1,053.87.

The very favorable emotion of investors for Shopify has made its stock relatively overvalued compared to its e-commerce peers. The TTM Price/Sales ratio of SHOP is 49.21. This is much higher than its rival Square’s (SQ) TTM P/S ratio of 7.24. Adobe (ADBE), the parent firm of Magento (another rival of Shopify) only has a TTM P/S ratio of 16.31.

(Source: Seeking Alpha Premium)

Investors elevated Shopify over its peers simply because they believe it has the best growth potential. SHOP has a higher P/S valuation multiple than SQ and eBay (EBAY) because it has a higher 5-year revenue CAGR. Shop is relatively overvalued because of its 69.48% 5-year revenue CAGR. Growth-minded investors always prioritize companies with the best growth performance.

(Source: Seeking Alpha Premium)

Going forward, Shopify can maintain a revenue CAGR of 30% or higher. The global fear over COVID-19 means more people are buying things online. More laid-off workers will also try their luck with online selling. The long and still ongoing quarantine rules here in the Philippines has forced many Filipinos to become online sellers. Facebook (FB) has become the world’s most active platform for peer-to-peer online selling. Many dedicated Filipino online sellers are using Shopify as their Facebook e-commerce. The tailwind behind SHOP’s rapid growth is Shopify’s long-standing integration with Facebook.

For just $13 per month, a Shopify subscriber can start selling online through Facebook.

The big success of Shopify has even inspired Facebook (FB) to implement its dedicated online selling platform, Shops. The launch of Facebook Shops last month still did not faze SHOP believers. Facebook Shops is not perceived as an imminent threat to Shopify. Long-term online sellers on Facebook will remain loyal to Shopify. Years of established relationships cannot be undone especially if an online store is doing well. Facebook Shops is aimed at neophyte small-time online sellers.

WooCommerce, not Facebook Shops will remain the fiercest rival of Shopify. Adobe’s Magento is losing developers’ interest since last year. Going forward, Shopify can continue to outpace of the freemium WooCommerce WordPress plugin. Shopify is also compatible with WordPress-based websites. WordPress is the most-used Content Management System for websites. SHOP is a buy because it is compatible with Facebook (the world’s largest social network) and WordPress.

Conclusion

The strong upward trajectory of Shopify’s stock is thanks to its rapid revenue growth rate (almost 70%) 5-year revenue CAGR). If you think SHOP is expensive now, wait until December. I am highly confident that SHOP can breach $850 before 2020 ends. The growth momentum of Shopify got a strong tailwind from this ongoing pandemic. The lack of a cure or vaccine for COVID-19 virus means people will keep relying more on online stores.

(Source: Statista)

Its risky to bet on high-flying stocks. However, SHOP is a good momentum bet on the fast-growing $4.2 trillion global retail e-commerce industry. SHOP could soar above $800 after it makes its Q2 report next month. Shopify only needs to report another high double-digit year-over-year gain on Q2 revenue. This will be enough incentive for the market to boost SHOP to above $800.

The predictive AI of I Know First is also super bullish on Shopify. It gave SHOP a one-year forecast market trend score of 408.71. I Know First’s one year forecast for SHOP has a above average predictability score of 0.64.

Past I Know First Shopify Stock Forecast Success

On May 1, 2019, the I Know First algorithm predicted a bullish movement for the 1-year Shopify stock price forecast. In this time frame from May 1, 2019, to May 1, 2020, Shopify grew by 151.98%, confirming the algorithm’s bullish forecast.

Here at I Know First, our stock market AI has modeled and predicted assets price movement worldwide for short-term and long-term time horizons, ranging from 3 days to a year. Since 2011, we have been providing stock predictions, as well as S&P 500, Forex Forecast as well as Apple-stock-news. Today, we are producing artificial intelligence stock prediction for over 10,500 assets, including gold prediction and commodity predictions. These forecasts generated by our quant trading tool are used by institutional clients, as well as private investors and traders to identify the best investment opportunities in the market.

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