Evercore ISI has recently downgraded its rating on Shopify stock (NYSE:SHOP) from Outperform to In-Line. This change comes as a result of the firm’s valuation call, deeming the risk-reward outlook on the stock to be less compelling following the significant share price rally in 2023.
According to analysts at Evercore, the surge in SHOP shares observed year-to-date has been driven by several factors, including the stabilization of fundamentals, implementation of new cost measures, and a strategic shift away from fully integrated shipping and logistics. Evercore acknowledges that these developments have contributed to the stock’s impressive performance. However, analysts foresee limited clear catalysts in the near future that could further extend the rally for this e-commerce giant.
In terms of valuation, Evercore ISI’s perspective is that SHOP shares are trading at notably high levels when examining the estimated enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) ratios for 2024 and 2025. Specifically, based on Street estimates, SHOP is trading at approximately 106 times EV/EBITDA for 2024 and 59 times EV/EBITDA for 2025. Evercore compares these figures with a basket of software stocks, including NOW, PANW, WDAY, FTNT, TEAM, VEEV, and ZS, which exhibit reasonably similar scale and revenue growth. The analysis reveals a consistent range of 9-11 times enterprise value to sales (EV/Sales) for 2024 estimates among these comparable stocks. Evercore believes that this valuation discrepancy does not justify a further rerating for SHOP shares.
Evercore ISI has established a base case price target of $69 for Shopify (NYSE:SHOP), considering the aforementioned factors. It is worth noting that the stock’s 52-week high currently stands at $71.43. Additionally, short interest in SHOP is reported to be at 2.45% of the total float.
Following Evercore’s rating downgrade, shares of Shopify (NYSE:SHOP) experienced a decline of 1.25% in postmarket trading on Monday. Market participants will likely continue to monitor the stock closely to assess any potential future developments that could impact its valuation and overall performance
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Author Faith Yakubu 
