Shopify Analyst Struggles To Justify Stock's Valuation, 'Caution May Be Warranted'

Benzinga - by Surbhi Jain, .

Shopify Inc (NYSE:SHOP), will be reporting its fourth-quarter earnings on Feb. 13. Wall Street expects 31 cents in EPS and $2.08 billion in revenues as the company reports before market hours.

The company is known for its user-friendly e-commerce platform that allows businesses to set up online stores and sell products or services.

Here's what analysts will be focusing on, and how the stock currently maps against Wall Street estimates.

Shopify Investment Thesis: Shopify had a robust 2023, driven by strategic shifts, including abandoning logistics ambitions and prioritizing profitability. The company’s core e-commerce market is returning to pre-COVID growth, and cost discipline has contributed to improved profitability.

While Shopify remains a strong company with solidified competitive positioning, its maturing business indicates future growth will be more modest. However, the company’s true earnings potential becomes evident as revenue growth and cost discipline drive margin expansion, supporting a valuation with operating profit margins exceeding 20%.

Recent partnership activities suggest a reduction in competitive pressures, although this comes at the expense of long-term upside in areas like logistics. As Shopify approaches its fourth-quarter earnings release with optimism, the question arises about the sustainability of its valuation, supported by best-in-class growth.

While profitability improvements and execution track record are positive, caution may be warranted as valuation remains lofty. Despite robust growth in expansion products, the stock trades at historical multiples, creating an unfavorable setup for strong returns.

Needham analyst Anna Andreeva also said, “We struggle how to justify SHOP’s valuation…although the company is unique with outsized GMS growth.”

Shopify stock currently trades at a TTM P/E multiple of 197.22 and a forward P/E of 132.87.

Also Read: Cathie Wood Trims Nvidia, Shopify Stakes To Pump Whopping $40M Into Pinterest Despite Q4 Revenue Miss

Shopify Analysts' Focus & Consensus Ratings Q4 Analysts' Focus: Analysts will focus on Shopify’s Q4 revenue and profitability, guidance for 2024, the impact of recent partnerships on competitiveness, user metrics, international expansion, the quality of growth, and updates on strategic initiatives during the earnings report to gauge the company’s performance and outlook.

Ratings & Consensus Estimates: Consensus analyst ratings on Shopify stock stand at a Neutral currently with a price target of $55.26.

SHOP Price Action: Shopify stock was trading at $90.64 at the time of publication.

Read Next: Smart Money Is Betting Big In SHOP Options

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