The Stock of Shopify Looks to Snap Its Six-Session Losing Streak After a Recent Upgrade by Bofa

Shopify Inc. shares have had a challenging year, but BofA Global Research believes their fortunes might improve.

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On Tuesday, analyst Brad Sills upgraded Shopify shares to "buy" from "neutral," citing the Canada-based e-commerce company's shift towards balanced growth and improved margins. Sills noted that the company's revenue growth combined with disciplined spending indicates healthy margin expansion.

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This positive outlook is supported by Shopify’s transition away from lower-margin payment offerings, a move expected to stabilize gross margins, which have fallen by 650 basis points since fiscal 2017.

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The company is adopting a more cautious spending strategy, evidenced by a more rational approach to headcount. Sills also anticipates that Shopify will gain market share in the expanding e-commerce sector.

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Recently, the company's gross merchandise volume has been growing at more than twice the rate of the overall e-commerce market. Sills believes Shopify’s large base of 2.5 million merchants and its expansive platform will continue to drive market share gains.

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Sills clarified that his upgrade is not a prediction for Shopify’s upcoming earnings report. However, he pointed out that BofA’s online spending report indicated that overall e-commerce spending increased in the second quarter compared to the first quarter. This trend bodes well for Shopify’s performance.

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He raised his price target for Shopify shares to $82 from $78, suggesting a 28% upside from Monday's close. Shopify shares were up more than 5% in Tuesday trading, potentially ending a six-session losing streak. Despite this, Shopify’s stock had been down nearly 18% for the year through Monday’s close.

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Sills believes Shopify shares are trading at a “reasonable multiple,” with his $82 price target implying a 10x multiple of enterprise value to estimated 2025 revenue. This equates to a 0.5x growth-adjusted multiple, aligning with the large-cap software group.

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In summary, while Shopify shares have struggled this year, BofA Global Research's Brad Sills sees potential for improvement due to the company's balanced growth, disciplined spending, and potential for market share gains in the e-commerce sector.

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