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Shopify Stock Has Dropped a Ton. Is It Time to Buy?

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Shopify stock has gotten hit hard during the recent tech selloff. William Blair analyst Matthew Pfau says it’s a buying opportunity

In a note Wednesday, Pfau upgraded Shopify (ticker: SHOP) to an Outperform from Market Perform, saying the Canadian e-commerce giant has the potential to boost revenue by about 30% over the next several years.

Shopify stock has declined roughly 34% from its high in mid-November and is down 2% over the past 12 months. In comparison, the Nasdaq Composite has risen 16% over the same period.

But Pfau said the stock has plenty of growth levers remaining, including enterprise, international, and take-rate. “Given these dynamics, we believe Shopify can increase its revenue more than twice the e-commerce growth rate over the next several years, resulting in 30%-plus growth in a bull-case scenario, in our view

This revenue growth, coupled with maintaining a premium valuation, should drive shares to outperform the overall market and SaaS [Software as a service] space,” the analyst wrote.

Pfau also highlighted Shopify’s investment in products such as point of sale, shipping/fulfillment, and social commerce, which have the potential to be “material” growth drivers over the longer term.

However, he warned that there could be further downside: the stock trades at a lofty valuation at 24 times, even if that’s already down from the banks 36 times estimate.

Other risks include a further compression of multiples in the SaaS space, e-commerce growth coming in below analyst expectations of low teens over the next several years, and Omicron potentially creating a near-term headwind to e-commerce sales.

“Although hard to call where the near-term bottom is, and the stock is still not inexpensive by any means, over the long term we believe Shopify should be able to maintain a premium valuation given its growth prospects, great execution, and dominance in the e-commerce software SaaS space,” Pfau wrote.

Write to Lina Saigol at lina.saigol@dowjones.com

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