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Stockchase Insights Shopify Inc. SHOP-T BUY Oct 30, 2024

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

SHOP reports November 12th pre-market. Estimates call for Revenue of C$2.94B and EPS of 38c. We think the stock has good potential to beat these estimates somewhat given pricing changes and resilience with consumer and e-commerce demand. There are some mixed views on the latter two factors however, so we are cautiously optimistic given some of the volatility that SHOP saw earlier on in the year. Risks are a slow down in consumer and economic conditions as well as any margin pressures. SHOP has previously been punished for declines in guidance on margins, so improving profitability is something that the market is demanding. Catalysts for growth are increasing the number of merchants on SHOP's platform, having more merchants upgrade their subscription tier, and increasing GMV. We also think that the growth in the offline B2B transaction side of the business could be a catalyst to drive the stock higher.
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BUY ON WEAKNESS

Growth company that hasn't been smashed, despite coming down from highs. Flirting with getting into the NASDAQ 100; if it goes down there, will be a lot more buying. Last quarter earnings were good, subscription revenue up, and executing well. But it's pricey.

Must-own name, but you have to buy it at the right level. Very whippy, use the technicals to buy.

DON'T BUY

Not ready to buy. Stock's suffered, but still not cheap. Lots of growth is built into the share price. If recession, consumers will stop buying or buy less. He'd prefer AMZN, quite frankly.

DON'T BUY

Valuation is 61x forward PE with 25% growth, giving a PEG ratio of well over 2x. 200-week MA is trending lower, which is not a fantastic technical sign. Have to watch out for rivals such as AMZN and ETSY. Depends more on small-and mid-sized businesses, which can be affected more by any economic downturn.

COMMENT

A Canadian stock that will be a major beneficiary of AI.

BUY ON WEAKNESS

Look at the 5-year chart. The peak in 2021 concerns him on valuation. Not surprising that it came into resistance when it entered a similar window earlier this year. Likes buying dips, don't chase here.

TOP PICK

Fine job in utilizing AI, becoming more efficient. Cosmetics and clothing are two of its bigger channels, and these are among the easiest to switch supply chains. This makes those segments relatively less impacted by trade and tariff volatility. No dividend.

(Analysts’ price target is $159.57)

DON'T BUY

No idea if there's more upside. Very expensive. Doesn't have the consistency he looks for. Better opportunities at better prices elsewhere.

BUY

AMD vs. Shopify

Prfers SHOP. AMD is fully priced. He targets $125 USD for SHOP. Don't sell AMD, just raise some calls against it.

COMMENT

It is growing at 20% per year but trading at 100X earnings so there is a valuation risk. It is a good company but not so much the stock. It uses different software for different vendors and expanding internationally. It could go sideways or down.

TRADE

Very high valuation. On any fears of potential slowing, stock moves quite a bit. People probably trade it a lot. Great company, democratizing e-commerce for everybody. Tariffs may impact volumes until we get more clarity.

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