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Guggenheim Downgrades Shopify, Says Valuation Implies Minimal Upside

Guggenheim Downgrades Shopify, Says Valuation Implies Minimal Upside

Shares of Shopify Inc (NYSE: SHOP) have gained more than 45 percent since the start of 2019 and the stock's valuation implies limited upside potential ahead, according to Guggenheim Partners.

The Analyst

Guggenheim's Ken Wong downgraded Shopify from Buy to Neutral while removing a $285 price target.

The Thesis

Shopify's status as a "disruptive force" within the retail vertical space remains unchanged but the stock's valuation is stretched, Wong said in a note. The research firm updated its customer cohort analyst to better predict future revenue bullish investors are likely modeling. Under an optimistic analysis, including a compounded annual growth rate of "New" cohorts of 15 percent, fiscal 2020 revenue would come in at around $2.4 billion versus the consensus estimate of $2.009 billion.

If Shopify matches the bullish outlook the stock's valuation at 14 times next-12 months EV/Sales remains a "reasonable upper threshold," the analyst wrote in the note.

There are three scenarios where notable upside in the stock would be justified. These include:

  1. Acceleration in momentum at Shopify Plus could result in a "more aggressive pace of competitive displacement" versus current expectations;
  2. Shopify could expand into adjacent e-commerce markets including digital marketing and sales automation to "complete the commerce loop;" and
  3. Management could issue bullish guidance during its June user conference, including a long-term margin target north of 20 percent.

Price Action

Shares of Shopify were trading lower by 3.4 percent at $250.04 Monday morning.

Related Links:

Shopify Analyst Tackles 3 Investor Questions In Bullish Initiation

Wall Street Weighs In On Shopify's Q4 Earnings

Latest Ratings for SHOP

Jan 2021Roth CapitalMaintainsNeutral
Jan 2021KeyBancMaintainsOverweight
Jan 2021OppenheimerUpgradesPerformOutperform

View More Analyst Ratings for SHOP
View the Latest Analyst Ratings


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