Shopify slump seen as entry point for traders ahead of earnings

(Bloomberg) — A recent slump in Shopify Inc.’s share price has set up a compelling entry point for investors ahead of Wednesday’s highly-anticipated earnings release, according to three new Wall Street bulls.

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Down 15% from a February peak, the shares currently have the most buy ratings since 2022. Analysts at BNP Paribas SA, Citigroup SA and Morgan Stanley upgraded their ratings to buy-equivalent in the past month.

“We definitely think it has a long-term place in the e-commerce world,” said David Klink, a senior analyst at Huntington National Bank. With Shopify and some peers stuck below their all-time highs, “those names just got clobbered over the last few years. You wonder if maybe it’s gone a little bit too far.”

After rallying more than 120% last year, Shopify shares have struggled in light of the company projecting higher operating costs than expected for this quarter. The stock, which fell as much as 2.7% in US trading on Tuesday, is roughly flat in 2024, lagging the Nasdaq 100 Index.

On one hand, the shares have outperformed software peers such as Five9 Inc. and Squarespace Inc. since the start of 2023. But in that time Shopify has also lagged similarly beaten-down e-commerce names including Affirm Holdings, Inc. and PayPal Holdings, Inc.

Muted expectations and beneficial trends should now help, according to Citi analysts. They note that cost cuts have enabled Shopify to address margin and profitability issues, along with last year’s sale of most of its logistics business to Flexport Inc.

“We are more confident Shopify can surprise to the upside,” Citi analysts led by Tyler Radke wrote in a recent note upgrading the stock to buy from neutral and lifting the price target.

Separately, BNP Paribas analysts led by Stefan Slowinski also upgraded Shopify to outperform last week, adding that they see the firm returning to high-twenties revenue growth in 2024, leaving it “looking undervalued.”

To be sure, questions remain about the resilience of a recovery amid any change in the macroeconomic outlook, or the risk of a recession-driven drop in consumer demand. Truist Securities on Monday reiterated its hold rating on the stock, which trades more than 50% below a record high close set in 2021.

Still, the current level may show investors have punished the shares too much, according to analysts at Morgan Stanley.

“Despite questions around the durability of Shopify’s operating margin expansion following Q4 results, we believe investor expectations have over-corrected,” analyst led by Keith Weiss wrote in a recent note upgrading the stock to overweight.

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(Adds Tuesday’s share move in fourth paragraph.)

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