Shares of Shopify (SHOP +3.32%) are moving higher again, and it's time to see if a cautionary analyst note can finally eat into the dot-com darling's monster rally. The provider of a fast-growing e-commerce platform for small- and mid-size businesses rose 8.7% last week, extending its monthly winning streak to eight if the gains hold up through the end of this week.
There was no particular news fueling last week's move higher. Shopify stock was finally starting to seem mortal. Another blowout quarterly report in May pushed the stock up for the seventh straight month, delivering a whopping 122% return in that seven-month run. However, the fallout of a secondary offering completed late last month and an analyst downgrade two weeks ago were starting to weigh on the shares through the first half of June.
Momentum then started to turn bullish again, as the shares moved higher for six of the seven trading days before retreating on Monday. Last week's gain was enough to push June's stock return into positive territory, but now an analyst initiation with a ho-hum market call and a price target below May's close threatens to put an end to one of the market's more impressive winning streaks.
Image source: Shopify.
Window shopping
Terry Tillman at SunTrust is initiating coverage on Shopify with a hold rating. His $90 price target suggests that the stock will be move slightly lower. The analyst's concern is valuation, a reasonable fear for a stock that has more than doubled in 2017 and has more than tripled over the past year. The market call -- made after Monday's market close -- could weigh on Tuesday's trading.
Jesse Hulsing at Goldman Sachs had downgraded the stock from buy to neutral two weeks ago. He was also concerned about valuation, pointing out that the rewards may no longer outweigh the risks. The stock had more than doubled since his upgrade in early October, and he didn't feel like nudging his current $96 price target higher in response to the buoyant shares.
A pair of lukewarm analysts this month may not be enough to torpedo the seven-month winning streak. The next few trading days will offer up the final answer. If gravity finally hits it obviously wouldn't be the end of the world for Shopify's well-rewarded bulls. No stock goes up forever, and corrections are natural if not healthy.
History will remain on the side of those long the stock, even if this week's initial correction after last week's rally intensifies. Shopify has become a market darling on the strength of its "beat and raise" financial updates every three months. The platform's simplicity -- with vendors paying as little as $9 a month to be on Shopify -- is resonating with merchants. Gross merchandise volume was $4.8 billion during this year's first quarter, 81% more than the same period a year earlier. Revenue soared 75% to $127.4 million, well ahead of its February guidance calling for $120 million to $122 million on the top line.
May's quarterly report was accompanied by Shopify pushing its revenue forecast for all of 2017 higher, going from between $580 million and $600 million to $615 million and $630 million. If we get a repeat performance later this summer, it wouldn't be a surprise to see Shopify off to the races again.
