Shopify Inc (TSX:SH., NYSE:SHOP) shares have little room to grow due to its premium valuation, despite having an “attractive growth trajectory”, analysts reckon.
Analysts believe the e-commerce platform, which reported higher-than-expected earnings on Tuesday, is well-positioned to undertake intermediate growth even if valuations are high.
Wedbush believes through Shopify signing on new merchants, deepening its payment penetration, and growing in unpenetrated channels, it is well-positioned to execute its overall strategy and remain a “secular market share winner”.
However, experts are unable to ignore that shares trade at a 52x premium to Wedbush’s 2025 underlying earnings estimate, putting it at a significant premium to other software rivals.
“While Shopify's growth trajectory is attractive, we are cautious as shares trade at a material premium relative to software peers despite the company's structurally lower margin profile,” said Wedbush.
A ‘neutral’ rating has been placed on Shopify by the LA bank and although its price target has been upped from US$68 to US$75, it still represents a discount to the current US$79 market price.
On Tuesday, management at Shopify warned that operating expenses would increase at a low-teens rate, higher than the 1.4% jump analysts had expected.
Therefore, Wedbush believes adjusted operating income will come in lower than prior estimates and consensus.
Shares in Shopify are up around 3% on Wednesday.