While Shopify (TSX:SHOP) stock has increased 50% in the last 12 months, it still trades 55% below all-time highs. Despite the pullback, Shopify stock has returned a staggering 3,000% to shareholders since its IPO (initial public offering), comfortably outpacing the broader markets.
Today, Shopify has a market cap of US$91 billion, making it one of the largest companies in Canada. Let’s see what investors expect from the tech giant in the first quarter (Q1) of 2024 and whether it can beat these estimates.
What should you expect from Shopify in Q1?
Shopify is scheduled to report its results for Q1 of 2024 on May 8. Analysts tracking the stock expect Shopify to increase sales by 28.9% year over year to US$1.84 billion, while adjusted earnings are forecast at US$0.17 per share. In the prior-year period, Shopify reported revenue of US$1.43 billion and earnings of US$0.01 per share.
A key reason for Shopify’s stellar performance in the last year can be attributed to a broader market recovery and its strong quarterly results. In fact, the Canadian tech stock has beaten consensus earnings estimates in each of the last four quarters.
In addition to its Q1 numbers, analysts will also be closely watching Shopify’s guidance for the rest of the year. Shopify and several other e-commerce companies thrived amid the COVID-19 pandemic, as retail locations were shut down and people were forced to shop online. However, in the last two years, top-line growth has decelerated alarmingly for Shopify.
Wall Street expects Shopify’s sales to increase by 21.3% to US$8.56 billion and earnings to expand by 41% to US$0.73 per share in 2024.
Is Shopify stock a good buy?
Shopify accounts for 11% of total e-commerce transactions in North America and is the second largest e-commerce player in the U.S., providing the company with a wide economic moat and pricing power.
Over the years, Shopify has successfully expanded its suite of enterprise-faced offerings. More than two million merchants use Shopify to establish and grow an online presence, allowing the online platform to end 2023 with a gross merchandise volume of US$235.9 billion and revenue of US$7.1 billion.
In the last few quarters, Shopify has focused on improving its profit margins by cutting costs and laying off a chunk of its workforce. Shopify also sold off its loss-making logistics business to boost liquidity that could be reinvested in organic growth projects, enabling the company to report a positive operating income in the last six months.
Is Shopify stock undervalued?
Given Shopify’s earnings forecast, the tech stock trades at a lofty forward earnings multiple of 70 times. However, analysts covering Shopify expect it to expand earnings by 60% annually through 2028. So, SHOP stock should end 2028 with adjusted earnings per share of roughly US$7.5.
If the stock is priced at 30 times forward earnings, it should surge to US$225 in the next four years, indicating an upside potential of 216% from current levels. Wall Street remains bullish on SHOP stock and expects it to surge over 15% in the next 12 months.
