Is Shopify a buy?

It's time to break down and update a major e-commerce name. Here is the breakdown on $SHOP, better known as Shopify.

Current Price: $996.00

52/Wk High: $1146.91

52/Wk Low: $282.08

Market Cap: $121.4 billion

Read below for the breakdown!

$SHOP is an online platform in which provides the tools for virtually anyone to create, run, and operate an online retail business.

Shopify has been popular for years and growing with common online growth trends, but COVID-19 has put the company into a more exponential growth position.

Shopify also recently announced a partnership with Tik Tok which will allow a massive amount of Shopify users to create and run ad campaigns on the social media platform.

Taking a look at the most recent quarter, Q3, Shopify reported a stellar Q3 beat with an EPS of $1.13 versus the expected EPS of $0.53.

Furthermore, Shopify reported Q3 revenues of $767.4 million, representing a 96% increase since Q3 of 2019. Not only did revenues continue to grow but net income also grew to a solid $191.1 million.

Breaking down the revenues for the quarter, Subscription solution revenues grew 48% to $245.3 million. Secondly, Merchant solutions revenues grew 132% to $522.1 million.

Third quarter gross profit dollars also increased 87% to $405.1 million while adjusted gross profit grew 88% to $412.6 million.

On a final note, GMV ( Gross merchandise value) for Q3 came in at $30.9 billion representing 109% growth while GPV (Gross Payments Volume) totaled $14 billion, now representing 45% of GMV.

Although the numbers were solid, management disappointed with guidance and did not give any forward outlooks but remained positive.

Digging into the balance sheet the numbers are very good, but the company put on its first debt level.

Total Debt: $750 million (No debt on balance until Q3, first debt recorded)

Total Liabilities: $1.285 billion

Total Assets: $7.462 billion

Cash & Short Term Inv: $6.121 billion

When it comes to valuation though, the stock has run very far and fast throughout the year and is trading at a major premium.

Price to Earnings: 583.55x

Price to Sales: 45.40x

Price to Book: 18.06x

Price to Cash Flow: 133.11x

Given the numbers the analysts are quite bullish. Firstly, the mean price target is $1161.00/share, representing a 16.60% gain.

Secondly the high price target is $1400/share, representing a 40.56% gain while the low price target is $950/share, representing a -4.62% loss.

Not only are the analysts bullish but the big money is as well. Currently, 69.63% of Shopify is owned by institutions. Top holders include Fidelity Management and Research, Capital World Investors, and Baillie Gifford & Company.

The technicals could also be flashing opportunity after a recent pullback. According to the six-month charts the MACD is moving with downward momentum within a range of -2.4702 to -15.3459.

The six-month charts are also implying an RSI of 48.33 and CCI of -76.328, both of which are not bad locations to open a position. It is also important to note that Shopify currently trades roughly 149 points off its highs.

Overall, Shopify is a great company that will benefit massively in the long term due to digital trends and e-commerce growth, but the stock is very expensive, a cheaper price point is needed if investing for the near to mid term.

On the other hand, on a long term (one to five years minimum) basis Shopify is still very expensive but if you wish to get in it's not a bad price.

EAT - SLEEP - PROFIT

Disclaimer: This is not direct financial advice, simply opinion based on independent research.