Valued at $105 billion by market cap, Shopify (TSX:SHOP) is among the largest companies in Canada. It provides enterprises with a portfolio of products and solutions to set up an online presence and gain a foothold in the expanding e-commerce segment.
Shopify went public in 2015 and has since returned 2,520% to shareholders. Despite its outsized gains, the Canadian tech stock trades 62% below all-time highs, allowing you to buy the dip and benefit from outsized gains when market sentiment improves.
The next key driver of Shopify’s stock price is its upcoming earnings results. Around 25% of the S&P 500 companies have reported their results in the second quarter (Q2), of which 80% have surpassed estimates. Let’s see what analysts expect from Shopify in Q2 and if it remains a good stock to own in July 2024.
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Shopify’s revenue is forecast at US$2.77 billion
Wall Street expects Shopify to report revenue of US$2.77 billion in the June quarter, up from US$1.69 billion in the year-ago period. Its earnings per share are forecast to rise from US$0.19 to US$0.27 in this period. While sales might rise by 64%, earnings growth is forecast at 42% in the June quarter.
Shopify has outpaced adjusted earnings estimates in each of the last four quarters. Despite the consistent earnings beat, SHOP stock has fallen by 6% in the last 12 months.
Is Shopify stock a good buy right now?
Shopify offers a range of digitally powered services to enterprise clients. It hosts a platform for businesses to operate online, and these merchants sold over US$60 billion in gross merchandise volume in Q1 of 2024. In the last two years, it has introduced over 400 new features and improvements, including a new AI (artificial intelligence) assistant called Shopify Magic.
Shopify is part of an expanding addressable market, as online sales account for just 15% of total retail sales in the U.S. The company’s growth story is far from over, given its forecast to expand sales by 22% to US$11.8 billion in 2024 and by 20% to US$14.15 billion in 2025.
Shopify has onboarded more than two million merchants onto its platform and generates stable recurring revenue from subscription sales. A widening merchant base and higher spending on the Shopify platform should help the company increase subscription sales further in the upcoming decade.
According to Statista, Shopify has a 28% market share among e-commerce software platforms and is the second-largest e-commerce company in the U.S. after Amazon.
Is Shopify stock undervalued?
Shopify stock is priced at 6.5 times forward sales and 44.9 times forward earnings, which is not cheap. However, a growth stock commands a premium due to higher estimates and the potential to deliver outsized returns.
According to Wall Street, Shopify’s earnings should touch US$6.75 per share in fiscal 2028. So, if the stock is priced at 30 times forward earnings, it should trade around US$200 in July 2028, higher than the current trading price of US$59.27.
Out of the 49 analysts covering Shopify stock, 27 recommend “buy” and 22 recommend “hold.” The average 12-month target price for SHOP stock is US$108, indicating an upside potential of 90% from current levels.
