RBC calls this stock the most compelling long-term growth story it covers
Shopify ‘s valuation will likely continue to be hurt by the uncertain economic outlook even if its bottom line isn’t showing warning signs, RBC said. “While macro uncertainty and higher risk-free rates are likely to continue to weigh on Shopify’s valuation through the end of 2022, we believe Shopify is one of the most compelling long-term growth stories in our coverage universe,” analyst Paul Treiber said in a note to clients. He cut Shopify’s price target to $55 from $60 despite keeping the stock at an outperform. The revised target implies the stock could almost double in value from closing price of $29.75. Investors have been shying away from stocks that are thought to be risky given rising interest rates and the threat of a possible recession, which would slow consumer spending. These stocks include companies like Shopify that haven’t had a long track record of profitable growth. But Treiber says there is a chance Shopify will top both RBC and Wall Street’s expectations for third-quarter revenue growth, when it reports its results on Thursday. Current predictions are at $1.34 billion, but he expects revenue to be closer to $1.4 billion. Data shows e-commerce spending has remained strong in the third quarter, Treiber said, citing U.S. Census Bureau retail sales data as a factor. That report showed non-store sales rose 14% in the period from a year ago. Separately, a report from Mastercard’s SpendingPulse said third-quarter online spending has risen 10% year over year, which is a much faster pace than in the prior quarter. Treiber also predicts Shopify is likely to reiterate its 2022 forecast, which calls for its growth to outperform industry trends in the second half of this year and for it to sign up more merchants to its network than it did in the first half of the year. Shopify shares closed Friday at $29.75. Even if the stock’s current price nearly doubled, it would still be worth about half its 2022 starting value, given its nearly 79% decline so far this year. — CNBC’s Michael Bloom contributed to this report.
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