Shopify (SHOP) has strung together several quarters of at least 20% revenue growth, but there are still catalysts that could lift the stock higher, according to analyst Colin Sebastian at Baird.
Sebastian maintained his outperform rating on the shares but raised the price target from $85 to $87 per share. Wall Street's short-term price targets are of little use to long-term investors, but the reasons behind them can be enlightening. In this case, Shopify could be seeing strong traction in growing the number of active merchants on its platform, benefiting its growth and stock price.
Why Wall Street analysts like Shopify
The Baird analyst cited his firm's e-commerce platform survey, which indicated Shopify should see a marginal increase in net active stores. Specifically, the firm noted this could reflect strength in the Shopify Plus subscription plan, in addition to international and business-to-business opportunities.
Shopify is coming off a strong year where revenue grew 23% year over year to cap off a stellar 2023. The analyst consensus has the company posting another 21% of top line growth in 2024.
Shopify also posted a massive jump in operating profit last year, following the sale of its logistics business. However, Shopify could see another boost to the bottom line from the recent price increase for its Plus subscription tier.
Management also believes its new business-to-business offering will emerge as a key growth driver, tapping a $450 billion market.
Is the stock a buy?
The prospects for profitable growth have pushed the shares up almost 60% over the last 12 months. The stock already commands a premium valuation at a price-to-sales ratio of 14.
The most important takeaway from Baird's note to investors is that Shopify is executing well on its long-term growth strategy, which lays the ground for new highs to come to those who patiently hold the shares.
