After suffering a 16% price drop over the past month, Shopify (SHOP +3.18%) stock is ice-cold on the market. Does that make the e-commerce facilitator an irresistible buy?
One analyst tracking the company certainly thinks so, even though he just took a big pair of scissors to his price target. Here's a look at the current state of Shopify, and whether its recent share price tumble makes it a buy on weakness.
A chop from a bull
In the wake of Spotify's first-quarter earnings release, Roth MKM's Darren Aftahi significantly reduced his price target over the next 12 months on the stock to $77 per share from the preceding $89 target. Crucially, though, he maintained his buy recommendation. The new target still implies a 31% jump from the current price.
In a research note detailing his move, Aftahi waxed positive on numerous developments with Shopify's fundamentals, such as gross merchandise volume (GMV). He wrote, "Trends across Shopify's non-core businesses remained strong in the first quarter, including payments, offline GMV, and international."
That wasn't all. He added, "Changes in marketing channels have led to improved new merchant adds and Shopify's focus appears more on larger retailers and even B2B wholesalers."
NASDAQ: SHOP
Key Data Points
First-quarter guidance sank the stock
Shopify's post-earnings sell-off was due largely to disappointing guidance for its current (second) quarter, as it beat on both the top and bottom lines for the first. Management said it expects gross margin to slide a bit, on the back of revenue that should "only" grow at low double-digit rates.
I think Shopify is one of a clutch of prominent, high-growth tech companies that have fallen victim to inflated expectations due to that prominence. There are still vast swaths of the retail economy that do not have an online presence, and the services Shopify provides remain sorely needed.
This stock has always been a fine play on the digital retail revolution, and it will undoubtedly continue to be one. I share Aftahi's continued bullishness on its prospects for growth.
