Shopify Too Hot to Handle for Some Analysts After Latest Surge

(Bloomberg) -- Shopify Inc.’s C$38 billion ($27 billion) stock-market gain since the beginning of the year has some analysts calling a time out.

The e-commerce services provider has surged 61% to a market value of C$97 billion. That briefly catapulted it ahead of Toronto-Dominion Bank on Monday to become the second-most valuable company on Canada’s benchmark S&P/TSX Composite index, though it fell back to No. 3 on Tuesday as global markets slumped.

“It’s tough to make money at the valuation Shopify is trading at,” said Jefferies analyst Samad Samana, one of the most bearish analysts on the stock. Risk-reward is not attractive and it’s hard to recommend a buy, he said. He has a hold call on the stock and a price target at $400, below estimate consensus and well off $585, its current price in New York.

Brian Peterson, an analyst at Raymond James, noted the stock is trading at about 39 times his 2020 estimates.

Its near-record valuation is “somewhat surprising” given the uncertain consumer spending environment, especially for discretionary products, which Raymond James believes is the key driver behind the company’s withdrawal of its 2020 revenue guidance earlier this month.

Shopify Too Hot to Handle for Some Analysts After Latest Surge

Peterson sees Shopify’s monster boom as good news for the future adoption of the platform though, as merchants are forced to migrate online, but its expansion may not “necessarily equate to sales volume.”

Read More: Shopify Valuation Already Reflects Pandemic Boost, Wedbush Says

A likely recession, “if we’re not in one already,” will inevitably see a downturn in sales as “no one is immune” to the pandemic, Samana said. The biggest concern is the spike of unemployment in the U.S., which has been the biggest revenue gainer for Shopify.

Consumer discretionary products, sold by many of Shopify’s merchants, are among the hardest hit. While sales decline, Shopify may still be able to get a piece of a smaller pie, Wedbush analyst Ygal Arounian wrote in a note Monday. However, some merchants are also expected not to renew their subscriptions amid a tougher environment, Arounian noted.

The excitement surrounding Shopify has not worn out, however, as the stock has 15 buys, 14 holds and three sells, according ratings compiled by Bloomberg.

Shares on loan to short sellers are still relatively low at 3.8% of Shopify’s float, according to data from financial analytics firm S3 Partners.

As Shopify inches closer to the top of Canada’s stocks leader board, investors are also reminded of the so-called curse that has seen former Canadian technology behemoths like BlackBerry Ltd. and Nortel Networks Corp. plunge after reaching seemingly indestructible levels.

©2020 Bloomberg L.P.

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