How Does the Market View Shopify?

By Scott Lee • Sunday, October 06 10:10 • Permanent Link

One of the standouts of today's morning trading session was Shopify, which logged a 5.5% performance and outperformed the S&P 500 by 4.0%. The Software stock is now trading at $82.43 per share and may still have upside potential because it is still -24.01% under its average target price of $108.48. Analysts have set target prices ranging from $81.46 to $135.77 dollars per share, and have given the stock an average rating of buy.

The market seems to share this optimistic view, since Shopify has a short interest of only 3.0% (this is the percentage of the share float that is being shorted). Each short position represents an investor's expectation that the price of the stock will decrease in the future.

Short selling involves borrowing shares and then selling them at current market prices. In the successful version of the strategy, the shares are purchased at a lower price at some time in the future. The investor then returns the shares to the lender, and keeps the profit made on the sell/buy transaction.

One way to get an idea of the market sentiment on a stock is to check its rate of institutional ownership. In the case of Shopify, institutional investors own 70.2% of the shares. This would indicate a positive sentiment towards the stock among institutions. What does this really tell us?

Institutional investors such as hedge funds, investment firms, and wealth managers devote significant resources to identifying good investments. If they have decided to invest in SHOP, it probably means they believe it is a solid investment choice. But it could also mean they are buying up shares in an effort to acquire the company or get seats on the board of directors. Also bear in mind that institutions are fallible (just maybe not quite as fallible as the average retail investor), so they may simply be wrong when they think they've found a good stock.

In conclusion, we see mixed market sentiment regarding Shopify because of an analyst consensus of strong upside potential, a buy rating, an average amount of shares sold short, and an average number of institutional investors. At Market Inference, we believe that any investment decision should be preceded by an in-depth analysis of the company's fundamental values and a comparison with similar stocks.

Here's a snapshot of some important facts to keep in mind about SHOP:

The stock has trailing 12 month earnings per share (EPS) of $0.99
Shopify has a trailing 12 month Price to Earnings (P/E) ratio of 83.3 compared to the S&P 500 average of 29.3
The company has a Price to Book (P/B) ratio of 11.59 in contrast to the S&P 500's average ratio of 4.74
Shopify is a Technology company, and the sector average P/E and P/B ratios are 30.01 and 3.91 respectively

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.