Canada’s top stock for the first half of 2019

It’s the top star-rated performer of the year so far, but we feel that it’s trading at twice the price it should be – is it still worth buying?

Andrew Willis 29 July, 2019 | 2:03AM
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Andrew Willis: Canadian software company Shopify [SHOP] took the top spot among star-rated stocks in the first half of this year, with a 6 month return of over 120%.

The one-stop shop for small retail business managed to set itself apart from other e-commerce platforms, especially in the lower-end and entrepreneurial segments, something that isn’t easy to do.

With its ease of use, great developer ecosystem and strong customer support, we agree with buyers of this stock that's it's a great platform. It’s also improving features, such as shipping, payments and financing coming up, we agree that's there's also room to grow.

We assign a narrow moat rating to Shopify, mainly because of the efforts and risks faced by customers switching from one platform to another, which works to Shopify's advantage. We also might have assigned a wider moat if it weren't for the start-up businesses that Shopify caters to, they often have high failure rates when starting out their business – and risk closing their account.

We think Shopify is twice as expensive as it should be, and we see revenues declining, earning it a one-star rating. 

But we still see annual revenue growth in the double-digits until 2023, representing an compound annual growth rate of 29% over five years. 

So if you believe Shopify sees some hidden sources of growth – perhaps among their higher end customers likely to upgrade their services. Shopify may just be a buy.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Shopify Inc Registered Shs -A- Subord Vtg87.91 CAD-0.26Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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