By Sabrina Escobar

Shopify stock was getting a boost Monday morning following another analyst upgrade.

Wedbush's Scott Devitt lifted his rating for the shares to Outperform from Neutral, and bumped up his price target to $125 from $115.

The stock was up 3.2% to $112.75 in premarket trading, while futures tracking the S&P 500 were up 0.8%. Shopify stock has gained 41% over the past 12 months.

"We are more constructive on shares in the near-term given an improving margin outlook following 3Q results and expectations for strong operating income growth in 2025," he wrote in a Monday note.

Shopify's earnings, reported in November, were strong. The company's revenue rose nearly 30% year over year to $2.16 billion, and earnings per share of 64 cents came in handily above expectations for 19 cents. Management's forecast for the fourth quarter was that revenue growth would remain in the mid-to-high 20s percentage rate.

Loop Capital also upgraded the stock to Buy in the wake of Shopify's earnings. Analyst Anthony Chukumba argued in December that investors hadn't fully appreciated how the company was embedding artificial intelligence into its platform, which would help it continue to boost revenue faster than expenses.

In Devitt's view, all this underscores the fact that Shopify remains the "dominant e-commerce software platform" on the market, with the opportunity to keep attracting new clients and enough wiggle room to keep increasing subscription prices.

To be sure, Shopify trades at a higher multiple of earnings per share than other consumer-focused internet stocks. Shares change hands at 73.3 times forward earnings, compared with Amazon.com's 35.7 times, Etsy's 20.8 times, and eBay's 11.7 times.

But Devitt believes the company deserves the lofty price tag. The analyst calculates that Shopify's operating income could increase by a 41% compound annual growth rate over the next five years, ahead of peers.

"Over time, we think there is significant pricing power embedded in Shopify's subscription model which is not reflected in Street estimates and could be a source of intermediate-term upside," he wrote.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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January 06, 2025 09:30 ET (14:30 GMT)

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