It looks as though Shopify (NYSE:SHOP) finally got some good news. Wells Fargo analyst Jeff Cantwell initiated coverage on Apr. 5 on the e-commerce platform. Cantwell gives SHOP stock an Overweight rating with a 12-month target price of $834, about 15% higher than its Apr. 4 closing price of $727. With Shopify’s share price down 49% year-to-date, but recovered from its March 52-week lows, this is another indication that the worst is over for the Canadian company. The big question is whether it can push through $1,000, where it traded as recently as late January.
There is no question that Shopify continues to grow, which is likely why the analyst gave it the rating and price target that he did. However, that doesn’t mean there aren’t risks attached to buying SHOP stock at current prices.
In 2021, Shopify grew revenues by 57% to $4.61 billion with an adjusted net income of $814.4 million, 66% higher than in 2020. However, the company has already said that it won’t grow by this much in 2022. Therefore, the stock’s 43% gain from its 52-week low of $510.02 on Mar. 14 could be nothing more than a relief rally rather than a bullish breakout.
When I last wrote about Shopify in mid-March, I suggested that it was an excellent long-term buy in the $500s. I further argued that Shopify shareholders should be happy with 25% – 30% revenue growth as online buying moderates over the next few years. I also said that this kind of growth would result in the company’s adjusted operating income hitting $1 billion in the next 24 months.
The latest analyst initiation by Cantwell brings the Buy and Overweight ratings to 21 out of 41. Another 19 have Shopify at Hold. Only one has it at Underweight or Sell. As far as the median target price, it is currently $900, above Cantwell’s number. The latest news ought to boost Shopify’s share price. I liked it in the mid-$500s. I still like it in the low-$700s. Shopify is a buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
