An impressive lot of three-dozen analysts offering 12-month price forecasts have issued Shopify Inc (NYSE:SHOP) a median price target of $40 with an estimated range of $29 to $70. While the stock has plummeted for the better part of the last 12 months, analysts have consistently given SHOP a MODERATE BUY rating, and the same is true today. Although more and more analysts seem to chime in every month, the number of BUY (or Strong Buy) to HOLD ratings has been mostly consistent as well, mostly at a 1:1 ratio for the last three months or so. For the three months prior, though, BUY (and Strong Buy) ratings have outranked Hold ratings by 2:1.
Share value for the Canadian e-commerce company is present $28.80, which is near the 52-week low of $27.65. So far, it is down more than -79 percent on the year, characterized by a staggering peak of $176.29.
Quarterly Earnings Indicate A Common Struggle
The current quarter is actually down -$0.06 earnings per share on sales of $1.3B, with less than a month until their next reporting date.
Earnings Per Share (EPS) certainly attest that Shopify has struggled the past year. In the third quarter of 2021, for example, analysts had forecast a modest range of $0.06 to $0.21 with a consensus estimate of only $0.12. Unfortunately, actual reported earnings barely beat the range, at only $0.08.
In Q4 (2021), however, earnings improved. For one, the forecast range expanded, on the high side, to $0.26. The consensus estimate also increased to $0.13. Most importantly, reported earnings beat the estimate—albeit by a single penny—coming in at $0.14
By 2022, however, it appears the struggles really began. Although online shopping had seen a major boost during the pandemic, supply issues and the rush to return to work may have contributed to a major downturn for them. Indeed, Q1 2022 saw analysts estimating that earnings could potentially sink into the negative, as they gave an EPS range forecast of -$0.01 to $0.19 with a consensus estimate of $0.06. The actual reported earnings of $0.02 could have easily been better, but as far as the downward trend is concerned, any positive outcome is certainly more welcome than the alternative.
For the second quarter of 2022, the outlook had not improved. Unfortunately, analysts had forecast an EPS range of -$0.02 to $0.09. The good news is that the consensus estimate was still net positive, at $0.02. The bad news is that reported earnings did not even meet the range, coming in at $-0.03.
Annual Earnings Are Steady
On an annual basis, earnings appear far more attractive, which might explain why analysts believe this could be a stock worth buying. The annual numbers seem to suggest that even though the firm is struggling—as are many—earnings show promise.
For example, actual reported earnings consistently beat the estimate for 2018, 2019, and 2020, though not by much. The only year to not beat the estimate was 2021, but the $0.64 EPS on the year met the consensus estimate. This indicates that even though quarterly figures may have painted a less impressive picture, the company is progressing at a fair clip.
Evidence of this can be found in their sales numbers, which have been more promising. First of all, earnings may sink in the past few quarters; but sales continue to rise. This may be one reason why analysts think Shopify could be a good BUY right now; and, at the same time, why it may be wise to wait just a little longer before picking up a few shares.
Effectively, sales have consistently met or beat the consensus estimate for the last four consecutive fiscal quarters. The same is true for annual sales numbers.
Share Value is Low, but Their Optimization is High
The most telling reason why analysts have consistently given Shopify a BUY rating (or better) is that e-commerce continues to be a solid investment across the board. While Shopify alone may appear to be struggling, the rest of the industry is humming along. Amazon, of course, remains the biggest internet retailer in the world, with a market cap of $1.2 trillion. By comparison, Walmart (NYSE:WMT) is their nearest brick-and-mortar competitor, and they are currently worth only $329.9 billion.
That said, Amazon (NASDAQ:AMZN) is actually down 27 percent this year, so far, and analysts have not lost any confidence in the stock. Similarly, China-based Alibaba Group Holding Ltd (NYSE:BABA) may also be down this year (around 15 percent) but as the country loosens up its crackdown on tech companies, this is expected to improve—and market trends seem to support this. On the other hand, Shopify is actually up 66 percent on the year, so if there is strong analyst confidence in lower-performing competitors, they must feel pretty good about Shopify as well.
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