On Thursday, Piper Sandler shifted its stance on Shopify (NYSE: NYSE:SHOP), raising the company's stock rating from Underweight to Neutral. The firm also set a new price target for Shopify at $63.00, citing a reevaluation of the company's growth and profitability prospects.
The upgrade comes after an examination of Shopify's first-quarter performance and future guidance. The company reported a non-GAAP operating expense of $761 million, which was a 13% increase from the previous quarter. Additionally, Shopify provided guidance suggesting low single-digit to mid-single-digit quarter-over-quarter growth. Despite the analyst's initial negative bias, particularly concerning the fiscal year 2024 profits, the recent developments have led to a reassessment.
Piper Sandler's analysis indicates a downward revision of the EBIT estimates by 9%, aiming for a 13% margin for the fiscal year 2024. This adjustment comes in response to the company's first-quarter performance and the subsequent guidance provided.
The firm acknowledges that the current trading price of Shopify's shares, which is in the low $60s, reflects a more balanced view of the company's value. This is a significant shift from the highly optimistic profitability scenarios that were prevalent among investors at the end of the previous year.
In light of these observations, the firm believes that Shopify's stock now holds a reasonable valuation. The company is projected to maintain a high-teens growth compound annual growth rate (CAGR), which could potentially more than double its revenue in five years.
Additionally, Shopify is expected to achieve a low-20s effective free cash flow (FCF) margin over the medium term. These projections form the basis for Piper Sandler's revised outlook on Shopify.
InvestingPro Insights
Piper Sandler's neutral stance on Shopify (NYSE: SHOP) aligns with some of the current financial data and InvestingPro Tips. InvestingPro notes that Shopify holds more cash than debt, indicating a strong balance sheet, which could be a reassuring factor for investors concerned about the company's financial health. Moreover, while the stock has experienced a significant decline over the past three months, analysts predict that the company will be profitable this year, suggesting potential for recovery.
From the real-time metrics provided by InvestingPro, Shopify's market capitalization stands at $80.84 billion, despite a negative P/E ratio of -473.43. The adjusted P/E ratio for the last twelve months as of Q1 2024 is 204.32, reflecting the market's expectations for future earnings growth. Additionally, the company has achieved a revenue growth of 25.56% over the last twelve months as of Q1 2024, which supports Piper Sandler's optimistic view on the company's revenue potential.
InvestingPro also offers additional tips for investors looking to delve deeper into Shopify's financials and market position. There are 16 more InvestingPro Tips available, which can be accessed through InvestingPro's platform, and by using coupon code PRONEWS24, readers can receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription. These insights could provide investors with a more comprehensive understanding of Shopify's standing in the IT Services industry and its future growth trajectory.
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