Shopify Inc. (NYSE: SHOP) has proven to be one of the most outstanding stocks of 2019 thus far. While investors have chased shares up roughly 125% year to date, one analyst believes it’s time for buyers to take a breather.
Wedbush downgraded Shopify to Neutral from Outperform but raised its price target to $305 from $270, implying a downside of 2.2% from the most recent closing price of $311.83.
When Wedbush initially launched coverage on Shopify, the firm highlighted its view that Shopify is skating to where the e-commerce puck is going and it continues to view the company through that lens. However, the firm is taking a step back on shares to digest the 125% year-to-date increase, premium valuation and new product announcements.
Additionally, while Wedbush views the announcements at Shopify Unite last week as further improving and differentiating the platform, the most impactful announcement, Shopify Fulfillment Network isn’t expected to generate profits until 2023.
Wedbush detailed in its report:
Our DCF projections imply Shopify can capture 6% of global ecommerce by 2028, or 21% ex China. That is an increase from 2% and 4% respectively in 2019. We take a deeper look at global ecommerce, including the large impact China has. China is expected to have 63% share of total ecommerce sales by 2023, which in our view implies Shopify needs to have at least some success in China to continue its current pace of capturing share. We view upside to current estimates and growth also coming in the way of better penetrating total retail sales, a scenario with some legs to it considering the new product initiatives.
While the long-term outlook is very favorable for Shopify, Wedbush believes that shares aren’t going anywhere in the near term and the market needs to digest 2019’s massive move.
Shares of Shopify were down 2.5% at $304.04 Tuesday morning, in a 52-week range of $117.64 to $338.94. The consensus price target is $261.83.
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