Shopify Has Several Positives Pointing To A 'Long-Tail Growth Story'

Shopify Inc SHOP has several positives that point to a “long-tail growth story,” Canaccord Genuity’s Richard Davis said in a report. The analyst reiterated a Buy rating for the company, with a price target of $38.

Despite the market being flat, Shopify’s shares may begin to advance, once investors start believing that the 2017 revenue growth estimates are realistic, if not conservative, and have confidence of the company being able to reach breakeven latest by 4Q17. “In just about any kind of “risk-on” tape, investors would likely bid up SHOP shares because it is the fastest growing publicly traded cloud applications firm out there,” Davis wrote.

Company-Specific Positives

Davis mentioned that several good things were happening at Shopify. Apart from being significantly better than most companies its size, Shopify has:

1. Partnered with its ecosystem
2. Expanded and upgraded its software
3. Executed on an efficient go-to-market strategy

External Positives

Shopify faces a competitive environment that is benign, the analyst stated. He added that while some companies do have strong components, Shopify is “gradually establishing itself as the “go-to” firm for cloud SMB ecommerce platforms.”

Attractive Valuation

Davis estimated the company’s 2020 revenues and FCFs at ~$1.2 billion and $125 million, respectively. Shopify generates best-in-class revenue growth among publicly-traded cloud software stocks. The analyst believes buying Shopify’s shares anywhere in the $20s “is a good proposition.”