Investors might be forgiven for thinking that after a 200% run in just 6 months, a stock might be ready to tap out for the year and begin to consolidate. But for shares of Shopify (NYSE:SHOP), it looks like they’re just getting started.
It’s certainly been a year of years so far for the $125 billion e-commerce company. They came into 2020 at all time highs after a blistering 200% run in 2019 but they look set to beat that this year already. The coronavirus pandemic has in many ways been a cloud with a very silver lining for them. Aside from being responsible for what we can now look at as a temporary crash in March, it has for the most part been a major revenue driver.
With more people than ever before having to shop online, supply has had to match demand and Shopify’s easy to use e-commerce solution allows individuals and businesses to get started with an online store.
Big Revenue Jump
Their Q1 revenue, reported in May, was up 46% year on year and gave investors a taste of what was coming. Q2’s numbers, reported in July, confirmed the rocket had taken off. Revenue was up more than 97% year on year and even more impressively, was 40% higher than analyst expectations.
As investors look ahead now to the next earnings report coming down the line in a few weeks, it’s only fair to be asking how much more upside can be baked into the current share price. Based on recent headlines, however, the answer is plenty.
On Wednesday, Wedbush Securities upgraded Shopify shares to Outperform from Neutral and pushed its price target up to $1,300. That implies the guts of a 30% move from yesterday’s closing price and would put shares well above August’s all-time high. Analyst Ygal Arounian is particularly bullish on the company’s ability to continue capturing market share as its total addressable market continues to expand.
Solid Market Share
His comments echoed those from Goldman Sachs last week who maintained their bullish outlook on Shopify stock while also raising their price target above the $1,300 level. In a note to clients they said “we believe the steady growth in value-added services offered by SHOP has significantly expanded the company’s opportunity per merchant.”
Only earlier this month the company raised close to $2 billion in convertible notes which shores up their cash reserves and strengthens their balance sheet. Investors should be confident in management’s ability to continue to execute strategies which have resulted in the growth seen to date.
Getting Involved
That doesn’t mean that a position in Shopify stock comes without risk. There have been voices calling for caution for some time now as the company’s valuation has stretched to eye watering levels. By one measure, Shopify must do 5x the e-commerce sales that Amazon (NASDAQ:AMZN) did in 2019 simply to justify its current valuation. And while Shopify might be the belle of the ball right now, competition in that space is growing and growing fast.
However, the optimistic investor might consider competition like this to be a good thing. Maybe if the likes of Macy’s (NYSE:M) had had a little more of it in recent years or reacted a bit better their stock wouldn’t be close to all time lows. There’s plenty of catalysts for Shopify investors to get excited about as we head into the last quarter of the year. Even with shares up 200% since March, there’s every reason to think they’ll be even higher by next March.
