After propelling to an all-time high late last week, Shopify (SHOP) shares are coming back down.
At Shopify Unite last week, the company announced major new products and services, including an updated Shopify Plus and new features to make it easier to sell internationally. But most importantly, the company announced it is launching a fulfillment network, which places it directly in competition with Amazon. After the announcements, SHOP stock shot up 8% to an all-time high — but this was short-lived, as shares have decreased 12% since. Has the stock reached its peak?
Roth Capital analyst Darren Aftahi believes that a lot of growth is priced into shares right now, as he downgrades his rating to Neutral, while increasing his price target of $300 (up from $275). (To watch Aftahi’s track record, click here)
Aftahi says the company is “adding its own twist by layering on features like AI and Machine Learning (ML) to help manage inventory,” as the company aims to deliver to 99% of the US within 2 days. The company plans to use seven third-party fulfillment centers to deliver to 99% of the US within two days. The rollout will take place over the next five years, and cost about $1 billion.
To this point Shopify has been a software company — this transition marks a major step in a new direction. Aftahi believes Shopify “was looking for a way to provide greater price transparency (less abandoned carts at checkout due to shipping times/costs) and compete with consumer and e-commerce expectations of 2-day shipping.”
Though Aftahi says “there are a lot of moving parts around SHOP’s investments in not only SFN but also additional international expansion alongside updates to its current platform,” he believes SHOP has enough customer and merchant data to back these investments. While complex, the analyst thinks “SHOP’s approach of solving multiple smaller problems (software, hardware, international, shipping, fulfillment, etc.) helps hedge itself from a growth standpoint in case any initiatives fall behind schedule.” Even so — and perhaps because of the announcement leading to a surge in its stock — Aftahi is downgrading the company, as he believes “all good news is priced in.”
Market data on TipRanks reveals consensus pegs Shopify as a ‘Moderate Buy’ stock. In the last three months, the Canadian e-commerce giant has scored 14 bullish analyst recommendations- with 9 analysts hedging their bets on the sidelines and 2 remain bearish. The 12-month average price target stands at $301.03, which aligns evenly with where the stock is currently trading. (See SHOP’s price targets and analyst ratings on TipRanks)