Sometimes investors can find “no-brainer” stock picks that end up being hugely profitable. For example, when the COVID pandemic first broke out and social distancing became compulsory, stocks like Zoom skyrocketed.
There’s a Wall Street adage that says, “when everyone else is mining gold, be the one selling the pickaxe.” In other words, the company that sells a product that everyone else needs is in an excellent position to profit.
Right now, there’s one company whose products and services are in high demand by other businesses, which gives investors a prime growth stock pick-up.
A Business Technology Company That Has Room to Run
Shopify (SHOP) is a $135 billion software application company that offers e-commerce solutions and point-of-sale payment systems for online businesses. It is the largest publicly traded Canadian company and supports more than one million businesses in 175 countries.
The company reported a phenomenal earnings beat for the first quarter of $2.01 per share – more than 175% over the analysts’ consensus of around $0.73 per share.
Revenues were similarly impressive, growing 110% year-over-year to $988.6 million.
Management reiterated full-year guidance following the beat and cited strong growth expectations throughout 2021.
The changing paradigm of consumers relying more and more on internet shopping resources is the most significant catalyst for Shopify. The company offers several platforms for online merchants to accept and process payments, manage orders, and even market to customers. New products and services such as the Shopify Fulfillment Network should add even more partners and clientele as we head deeper into the year.
The stock was upgraded twice in late April by Susquehanna and ROTH Capital. Both firms changed their recommendations from “neutral” to “positive” or “buy” with price targets of $1,500 per share and $1,530 per share, respectively.
The Fundamental Angle
The stock is a textbook growth stock trading at 192 times earnings – much higher than the Consumer Digital Services industry average of 81 times earnings.
While current EPS growth estimates give the stock a high PEG ratio of about 10, those numbers are subject to change new growth opportunities present themselves.
The company maintains a low long-term debt-to-equity ratio of just 0.10 and cash holdings of $7.87 billion, giving it plenty of room to make acquisitions or investments.
The Technical Angle
The chart for Shopify belies its strength with a number of ups and downs over the past several months.
The 20-day and 50-day SMAs are trending closely – almost on top of each other, while the 200-day SMA isn’t far below. There is a candlestick hammer formation on May 4th, but the stock followed with three consecutive down days.
All things considered, the RSI of 39 means that the stock could be edging close to oversold territory, though investors will want to watch for any signs of a bullish reversal.
The Bottom Line
Based on Shopify’s full-year EPS estimates, this stock should be fairly valued at around $1,500 per share – a gain of about 37% from its current trading price.
Growth investors looking for a chance to play the shift in consumer shopping trends won’t want to pass up this opportunity.
The above analysis of SHOP was provided by financial writer Daniel Cross.
MarketClub’s Analysis of SHOP
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