Shopify (SHOP) was recently named to Zacks.com’s list of Most Searched Stocks. Therefore, you should consider some of the key factors that could influence the stock’s performance in the near future.
Shares of this cloud-based trading company have returned +37.7% over the past month, while the Zacks S&P 500 Composite has changed by +5.7%. The Zacks Internet Services industry, which includes Shopify, is up 11.1% over the period. The key question now is: Where could the stock head in the short term?
Although media reports or rumors of a significant change in a company’s business prospects usually cause the stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.
Revisions to earnings estimates
Here at Zacks, we prioritize evaluating the change in forecasting a company’s future earnings over anything else. That’s because we believe the present value of its future earnings streams determines the fair value of its stock.
Essentially, our analysis is based on how sell-side analysts who cover the stock revise their earnings estimates to reflect the latest business trends. As earnings estimates for a company increase, so does the fair value of its stock. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, causing its price to move higher. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
For the current quarter, Shopify is expected to post a loss of $0.01 per share, down -107.1% from the year-ago quarter. The Zacks consensus estimate is down -2% over the last 30 days.
Consensus earnings estimate of -$0.04 for the current fiscal year indicates a change of -106.3% year-on-year. This estimate has changed by -3.4% in the last 30 days.
For the next fiscal year, the consensus earnings estimate of $0.04 indicates a +189.1% change from what Shopify was expecting a year ago. Over the past month, the estimate has changed by -18.5%.
Our proprietary stock ranking tool, the Zacks Rank, has a strong, third-party audited track record and provides a more meaningful picture of a stock’s near-term price action by effectively harnessing the power of earnings estimate revisions. The size of the recent consensus estimate change and three other factors related to earnings estimates give Shopify the Zacks #3 rank (Hold).
The chart below shows the development of the company’s 12-month consensus EPS estimate:
12 Month EPS
Projected sales growth
While a company’s earnings growth is arguably the best indicator of its financial health, not much happens if it can’t grow its revenue. It’s almost impossible for a company to grow its profits without increasing its revenue over long periods of time. Therefore, knowing a company’s potential revenue growth is crucial.
In Shopify’s case, the consensus sales estimate of $1.63 billion for the current quarter suggests a +18.5% year-over-year change. The estimates of $5.51 billion and $6.61 billion for the current and next fiscal year indicate changes of +19.4% and +20%, respectively.
Latest reported results and surprise history
Shopify reported revenue of $1.37 billion in its most recent reported quarter, a +21.6% year-over-year change. EPS of -$0.02 for the same period compared to $0.08 a year ago.
Compared to the Zacks Consensus estimate of $1.33 billion, reported earnings represent a surprise of +2.54%. EPS surprise was +71.43%.
Over the past four quarters, Shopify has beaten consensus EPS estimates twice. The company twice beat consensus sales estimates during the period.
valuation
No investment decision can be efficient without considering a stock’s valuation. When predicting the future price development of a stock, it is crucial to determine whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
Comparing the current value of a company’s valuation multiples, such as B. Price to Earnings (P/E), Price to Sales (P/S), and Price to Cash Flow (P/CF), with its own historical values help determine whether the stock is Fairly Valued, Overvalued or Undervalued while making the comparison of the company relative to its peers based on these parameters gives a good indication of how reasonable the stock price is.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups from A to F (A is better than B; B is better than C; and so on), making it helpful in determining whether a stock is overvalued, correctly valued, or temporarily undervalued.
Shopify is rated D on this front, indicating it’s trading at a premium compared to its peers. Click here to view the values of some of the assessment metrics that led to this grade.
Conclusion
The facts discussed here and plenty of other information on Zacks.com might help determine whether or not the Shopify market clamor is worth paying attention to. However, its No. 3 Zacks rank suggests that it could move in line with the broader market in the near future.
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Shopify Inc. (SHOP): Free Stock Research Report
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