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Why CIBC says Shopify is a top stock pick for 2023

According to CIBC Capital Markets, the e-commerce company has a number of catalysts on the horizon

BERLIN, GERMANY - AUGUST 08: The corporate logo of e-commerce company Shopify hangs at the building that contains the offices of Shopify Commerce Germany GmbH on August 08, 2022 in Berlin, Germany. Shopify is a leading, Canada-based company that enables online and brick-and-mortar commerce. (Photo by Sean Gallup/Getty Images)
CIBC Capital Markets says Shopify has a number of catalysts on the horizon, making it a top pick for 2023. (Photo by Sean Gallup/Getty Images)

Shopify Inc. (SHOP.TO SHOP), a former darling in the Canadian tech sector before a dramatic fall from grace, is now a top stock pick for 2023 at CIBC Capital Markets.

The e-commerce platform services company is "positioned to benefit in Q4/22E from strong Black Friday Cyber Monday (BFCM) trends and may also see a potential return to formal financial guidance," Todd Coupland, managing director and analyst at CIBC, said in a note to clients on Wednesday.

Coupland says business data firm FactSet expects Shopify to grow 19.3 per cent in the key holiday quarter, which the company should be able to meet or exceed. He adds that CIBC's own web traffic analysis supports that forecast.

Meanwhile, FactSet is forecasting 21 per cent growth for Shopify in 2023. Coupland believes that expectation seem overstated amid a possible recession, but says the company is "well positioned to achieve mid-double-digit growth in 2023 and 2024, a view that is supported by our forecast."

Shopify, along with many tech firms, has seen its share price punished by investors as the global economy reopened post-pandemic and online shopping patterns eased.

The stock is down roughly 80 per cent from its recent high in November 2021 when it traded above $200 per share and was one of the most valuable companies in Canada.

The company announced it was laying off 10 per cent of its workforce in July as chief executive Tobi Lutke admitted at the time his bet on e-commerce growth "didn't pay off."

However, Coupland says the company is slowly finding its footing again.

"A number of key issues are setting up to resolve themselves, from bringing back financial guidance to a possible integration agreement with Amazon on Buy with Prime (BWP), which would benefit Shopify's merchants and Shopify itself," he said, adding that another possible catalyst is the potential for complementary acquisitions.

"For these reasons, Shopify is an attractive investment for 2023," he said.

Has tech sector hit bottom?

CIBC says it's still unclear whether the tech sector has truly bottomed.

"On one hand, the sector is showing some signs of life in relief from higher interest rates. On the other hand, unlike previous tech downturns, we have yet to see many major company failures."

Whether a bottom has been reached will become more apparent through 2023 as more evidence emerges about slowing inflation and the duration of a possible recession, the report says.

"In this environment, investors will need to be selective, as the most favourable sectors and stocks are likely to be different," Coupland said. "The emerging reality will make stock selection critical as we know every technology and company will not survive."

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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