Shopify (NYSE: SHOP) has long put up enviable growth numbers, but its valuation has historically made the stock volatile.
The e-commerce software leader continues to trade at a high valuation, acting like a battleground stock at times as investors speculate on how long its rapid growth will continue, especially after its plan to expand into logistics through the Deliverr acquisition backfired.
However, Shopify impressed investors with its latest earnings report in August, and now another Wall Street analyst is lining up behind the stock.
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Shopify's going to $99?
Redburn Atlantic upgraded Shopify stock on Tuesday morning from neutral to buy.
The firm noted the company's leading integrations across social media and other platforms where businesses advertise and consumers shop, in addition to the increasing functionality of the Shop Pay button.
It expects the company to continue to grow as it capitalizes on Gen Z's online spending. It gave the stock a price target of $99, implying 33% upside.
Is Shopify a buy at $74?
Shopify is the clear leader in e-commerce software, having defended itself against the likes of BigCommerce, Amazon, and Square (which has since rebranded as Block), and it continues to find new ways to grow even as its gross merchandise volume makes it one of the biggest retail platforms in the world.
Shopify reported 21% revenue growth in the second quarter, and its free cash flow margin more than doubled to 16%.
The company is now profitable according to generally accepted accounting principles (GAAP), but on an adjusted basis, it still trades at a price-to-earnings (P/E) ratio of 76.
Shopify's competitive advantage gives the stock long-term upside, but getting to $99 in the next year seems like a tall order even as the business is executing. Shopify still looks like a buy, but the current valuation should temper expectations.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon, Block, and Shopify. The Motley Fool has positions in and recommends Amazon, Block, and Shopify. The Motley Fool has a disclosure policy.
