Shopify (SHOP) has been a hot topic among Zacks.com visitors lately, making it a prime candidate for a closer look. Over the past month, the stock has seen a solid +6.9% return, outperforming the Zacks S&P 500 composite’s +2.1% gain. However, before diving into the potential for future growth, let’s analyze the key factors influencing SHOP’s performance.
One crucial element to consider is the revision of earnings estimates. At Zacks, we prioritize evaluating this change because we believe it directly impacts the fair value of a stock. In essence, we analyze how sell-side analysts adjust their earnings projections to reflect current business trends. A rise in earnings estimates often translates to a higher fair value for the stock, attracting investors and potentially driving the price up.
For the current quarter, Shopify is expected to post earnings of $0.27 per share, representing a year-over-year increase of +12.5%. The Zacks Consensus Estimate has remained unchanged over the last 30 days. Looking ahead, the consensus earnings estimate for the current fiscal year stands at $1.12, indicating a year-over-year growth of +51.4%. This estimate has also remained unchanged over the past month. For the next fiscal year, the consensus estimate is $1.32, representing a +18.5% change from the previous year’s projected earnings.
While earnings growth is a key indicator of a company’s financial health, it’s crucial to also consider revenue growth. After all, it’s challenging for a company to consistently increase earnings without expanding its revenue base. Shopify’s consensus sales estimate for the current quarter is $2.11 billion, indicating a year-over-year growth of +22.9%. For the current and next fiscal years, the estimates are $8.62 billion and $10.31 billion, representing +22.2% and +19.6% changes, respectively.
Examining Shopify’s recent performance reveals that in the last reported quarter, they generated $2.05 billion in revenue, representing a year-over-year increase of +20.7%. EPS for the same period was $0.26, compared to $0.14 a year ago. The reported revenue exceeded the Zacks Consensus Estimate of $2 billion by +2.03%, while the EPS surprise was +30%. Shopify has consistently beat both consensus EPS and revenue estimates in the trailing four quarters.
Finally, we must consider valuation. To make informed investment decisions, it’s essential to assess whether a stock’s current price accurately reflects the intrinsic value of the underlying business and its growth prospects. Comparing a company’s valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its historical values can help determine if its stock is fairly valued, overvalued, or undervalued. Comparing the company to its peers can provide further insights into the reasonableness of its stock price.
Shopify currently has a Zacks Value Style Score of D, indicating it’s trading at a premium compared to its peers. This means it might be overvalued at the moment.
In conclusion, Shopify’s recent performance is positive, with strong revenue and earnings growth, and a consistent track record of exceeding estimates. However, its current valuation might be a concern. While its Zacks Rank of #3 (Hold) suggests it may perform in line with the broader market in the near term, investors should closely monitor the stock’s performance and valuation going forward. Remember, this analysis offers a starting point for your own research. It’s crucial to conduct thorough due diligence and consult with a financial advisor before making any investment decisions.
