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Monday’s TSX breakouts: This growth stock may snap back following a recent 14% stumble

On today's TSX Breakouts report, there are 14 stocks on the positive breakouts list (stocks with positive price momentum), and 59 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a growth stock that just seven trading days ago closed at a record high, appearing on the positive breakouts list.

Since then, the share price has tumbled 14 per cent along with the pullback in other technology stocks. On Friday, the share price stabilized, advancing 1 per cent on high volume. The company has a solid growth profile and recently shored up its balance sheet, providing the company with the necessary capital to fund its continued growth. The security highlighted below is Shopify Inc. (SHOP-T).

The company

Ottawa-based Shopify Inc. is an e-commerce company serving small and medium-sized businesses. Its software allows customers to perform functions such as inventory management, order and payment processing, and shipments of orders. The company also offers Shopify Plus, launched in November 2014, which services larger businesses such as Unilever, Nestle, GE, and Red Bull.

The company generates revenues from its two core segments: subscription solutions and merchant solutions. In the first quarter, revenues from subscription solutions represented 48.7 per cent of its total sales. This segment represents recurring revenues from subscriptions, typically monthly subscription plans. The balance of the company's total revenues, 51.3 per cent, stemmed from merchant solutions, which is mainly from payment processing fees. Fees are based on the value of the transaction plus a per transaction fee.

The company's merchant base is geographically diversified. As at December 31, 2016, the company had more than 377,500 merchants from approximately 175 countries using its commerce platform with 58 per cent from the U.S., 10 per cent from the U.K., 7 per cent from Canada, 7 per cent from Australia, and 18 per cent from other regions. In terms of customer diversification, no single merchant has represented more than 5 per cent of its total revenues in a single reporting period, and merchants operate in a variety of industries and markets.

The company has experienced stellar growth reporting total revenues of $24-million (U.S.) in 2012, $50-million in 2013, $105-million in 2014, $205-million in 2015, and $389-million in 2016. For 2017, management expects the company to generate revenues of between $615-million and $630-million.

Before the market opened on May 2, the company reported better-than-expected first quarter financial results that sent the share price soaring 7 per cent on high volume. Shopify reported total revenues of $127.4-million (U.S.), up 75 per cent year-over-year and surpassing the consensus estimate of $121.8-million. Subscription Solutions revenues came in at $62.1-million, up 60 per cent year-over-year, and Merchant Solutions revenue was $65.3-million, up a staggering 92 % year-over-year. The first quarter is historically the seasonally weakest quarter for the company. Management's forward guidance was positive. For the second quarter, revenue is anticipated to be between $142-million and $144-million.

The company has a strong balance sheet to support continued growth. On June, the company announced it completed a $576-million (U.S.) financing, through the issuance of shares at a price of $91 (U.S.) per share.

The company is dual-listed, trading on the Toronto Stock Exchange and the New York Stock Exchange under the same ticker SHOP.

Dividend policy

Management is currently focused on growth, and as a result, the company does not pay its shareholders a dividend.

Analysts' recommendations

There are 22 analysts whom have issued recent research reports, of which 15 are buy recommendations and seven are hold recommendations.

Financial forecasts

The consensus revenue estimates are $629-million (U.S.) in 2017, rising 40 per cent to $882-million (U.S.) in 2018. The Street anticipates Shopify will report positive earnings per share by 2018.

Revenue expectations have been steadily increasing. To illustrate, three months ago, the consensus revenue estimates for 2017 and 2018 were $599-million (U.S.) and $823-million (U.S.), respectively.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-sales (EV/Sales) multiple of 9 times the 2018 consensus estimate, below its peak multiple of over 11 times, but well above its valuation from a year ago, when the stock was trading at an EV/Sales multiple just under 5 times.

The average one-year target price is $93.24 U.S., implying the stock price may have 7 per cent upside potential. Individual target prices range widely, from a low of $70 U.S. (at Barclays) to a high of $105 U.S. (at CIBC World Markets and Eight Capital).

Revised recommendations

On June 13, the share price dropped 3 per cent when Jesse Hulsing, the analyst at Goldman Sachs, downgraded the stock to a 'neutral' recommendation from a 'buy'. He left his target price unchanged at $96 (U.S.).

This month, analyst Suthan Sukumar from Eight Capital increased his target price to $105 (U.S.) from $100 (U.S.), and maintained his 'buy' recommendation.

Insider transaction activities

On June 5, four insiders trimmed their portfolio positions, selling shares in the market. Harley Finkelstein, the company's chief operating officer, sold 2,238 shares at an average price per share of $97.1764 (U.S.). David Lennie, senior vice-president of data and analytics, sold 560 shares at an average price per share of $97.1764 (U.S.), reducing his holdings to 5,661 shares. Jean-Michel Lemieux, senior vice-president of engineering, sold 560 shares at $97.1764 (U.S.) per share, leaving a remaining portfolio balance of 20,485 shares. Lastly, Brittany Forsyth, senior vice-president of human relations, sold 560 shares at $97.1764 (U.S.) per share.

Chart watch

This stock has been a strong performer. Year-to-date, the share price has nearly doubled, rising 99 per cent. However, along with many other leading technology stocks, the share price has come under recent pressure and has declined 14 per cent in the past six trading days on elevated volume.

The stock price is hovering near a strong support level, close to its 50-day moving average at $114.26 (Canadian). Failing that, there is support around $100, and then around $80, near its 200-day moving average at $77.42.

On a recovery, there is initial overhead resistance around $120, and after that, around $130.

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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indices that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

If you want to receive an automatic link to all reports that I write, follow me on Twitter at @jennifer_dowty

Positive BreakoutsJune 16 close
BEP.UN-TBrookfield Renewable Energy Partners LP $44.40
CNR-TCanadian National Railway Co $107.57
DNA-TDalradian Resources Inc. $1.73
DRG.UN-TDream Global Real Estate Investment Trust $10.70
FIH.U-TFairfax India Holdings Corp. $15.94
FTS-TFortis Inc $45.79
HRX-THeroux-Devtek Inc $14.11
ITP-TIntertape Polymer Group Inc $24.77
LAS.A-TLassonde Industries Inc $248.01
AAR.UN-TPure Industrial Real Estate Trust $7.01
SIA-TSienna Senior Living Inc $17.79
SMU.UN-TSummit Industrial Income REIT $7.35
TWC-TTWC Enterprises Ltd. $11.35
WPRT-TWestport Innovations Inc $2.61
Negative Breakouts
AOI-TAfrica Oil Corp $1.93
AGT-TAGT Food & Ingredients Inc $23.60
AIF-TAltus Group Ltd $28.70
ACQ-TAutoCanada Inc $17.77
AVO-TAvigilon Corp $13.55
ABX-TBarrick Gold Corp $20.71
BDI-TBlack Diamond Group Ltd $2.64
PXX-TBlackPearl Resources Inc $0.96
BNP-TBonavista Energy Corp $2.43
CCO-TCameco Corp $12.09
CEU-TCanadian Energy Services & Technology Co $5.75
CS-TCapstone Mining Corp $0.83
CLS-TCelestica Inc $17.96
CG-TCenterra Gold Inc $6.72
CGG-TChina Gold International Resources Corp. $1.86
CHR-TChorus Aviation Inc $7.22
CXR-TConcordia International Corp $1.43
D.UN-TDream Office Real Estate Investment Trust $19.05
ELD-TEldorado Gold Corp $3.50
EMP.A-TEmpire Co Ltd $18.74
ECA-TEncana Corp $11.62
ENGH-TEnghouse Systems Ltd $51.59
EIF-TExchange Income Corp $29.25
FM-TFirst Quantum Minerals Ltd $10.21
GDI-TGDI Integrated Facility Services Inc. $15.27
G-TGoldcorp Inc $17.31
GC-TGreat Canadian Gaming Corp $23.11
HWO-THigh Arctic Energy Services Inc $4.42
HNL-THorizon North Logistics Inc $1.35
HBM-THudBay Minerals Inc $6.40
LUG-TLundin Gold Inc $5.65
MRD-TMelcor Developments Ltd $15.35
NAL-TNewalta Corp $1.68
NXE-TNexGen Energy Ltd. $2.70
NDQ-TNovadaq Technologies Inc $7.91
OTEX-TOpen Text Corp $41.45
PONY-TPainted Pony Petroleum Ltd $4.32
PAAS-TPan American Silver Corp $21.51
PSI-TPason Systems Inc $18.56
PLZ.UN-TPlaza Retail REIT $4.65
PD-TPrecision Drilling Corp $4.44
PLI-TProMetic Life Sciences Inc $1.65
RET.A-TReitmans Canada Ltd $4.48
REI.UN-TRioCan Real Estate Investment Trust $24.86
RBA-TRitchie Bros Auctioneers Inc $39.33
SAP-TSaputo Inc $41.90
S-TSherritt International Corp $0.77
TOY-TSpin Master Corp. $34.87
SII-TSprott Inc $2.12
SWY-TStornoway Diamond Corp $0.78
SPB-TSuperior Plus Corp $11.45
TVE-TTamarack Valley Energy Ltd. $2.07
TECK.B-TTeck Resources Ltd $19.73
TFII-TTransForce Inc $26.64
TV-TTrevali Mining Corp $1.05
TDG-TTrinidad Drilling Ltd $1.93
TRQ-TTurquoise Hill Resources Ltd $3.30
WRG-TWestern Energy Services Corp $1.90
YRI-TYamana Gold Inc $3.12

Source: Bloomberg

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