CA - Shopify: Strong Plus Migration Is A Bullish Signal (Rating Upgrade)
2024-06-09 20:00:00 ET
Summary
- Shopify's stock has dropped 20% in the past month due to slightly weak 2Q guidance, despite beating revenue and EPS expectations.
- The recent selloff is overdone and presents an attractive entry point, as the company's key growth drivers, including GMV, GPV, and MRR, remain on track.
- Shopify's resilient consumer spending, boosted by increased marketing investments, indicates potential for future growth.
- The EV/Sales/g and PEG multiple have largely decreased, trading below the sector averages, reflecting its revenue and earnings growth potential in the future.
- The Shopify Plus migration has been successful, enabling the company to secure a 3-year revenue stream and demonstrating strong customer engagement.
Investment Thesis
Shopify's ( SHOP ) has dropped 20% over the past month after a strong 1Q FY2024 earnings. This selloff was largely due to a weak forward guidance, even though revenue and EPS beat expectations in the last quarter. Unsurprisingly, the stock's premium valuation indicated high expectations going into the quarter, making it vulnerable to a weak forward guidance. In my previous analysis , I initiated a neutral rating on the stock and raised concerns that a valuation of over 10x EV/Sales FWD could pose a significant downside risk if top-line growth disappoints investors. The stock is currently trading flat despite a significant "U" turn over the past 7 months, which has largely underperformed compared to the 20% rally in the S&P 500 index....
Shopify: Strong Plus Migration Is A Bullish Signal (Rating Upgrade)