Key Points
This didn't make it more optimistic about its future, though, as the neutral recommendation was left intact.
While Shopify has notable growth potential, its AI costs might put the hurt on profitability.
One of the best and most immediate boosts for a stock is a meaty price target increase by an analyst. That was the case with Shopify (NASDAQ: SHOP) on Monday, as such a lift helped improve investor sentiment on the online commerce facilitator. Its share rose by almost 5% that trading session as a result.
A 9% bump
The researcher responsible for that increase was Cantor Fitzgerald, which now believes Shopify can reach $158 per share. Previously, its fair value assessment was $145. Cantor Fitzgerald didn't become notably more bullish because of this, however, as it maintained its neutral recommendation on the stock.
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The firm updated its take on Shopify in advance of the company's third-quarter earnings release, slated for Tuesday, Nov. 3. According to reports, it expects the company to notch convincing beats on gross merchandise volume (GMV) and revenue, with the latter's growth coming in at the low 30% range.
That optimistic outlook is tempered by concerns about Shopify's artificial intelligence (AI) inference costs, which might be considerable and squeeze the company's margins. Cantor Fitzgerald also cautioned about Shopify's tilt toward merchant solutions, which are less profitable as a whole than the company's subscription solutions.
Is it really good to be the king?
To me (and many investors), Shopify is the undisputed king of online e-commerce facilitation. Its top line continues to expand impressively in a world where digital retailing isn't just a good idea, it's a necessity.
But there are downsides to the stock, and I feel that market players are right to be concerned. Profitability has been choppy, and valuations are very high for such bottom-line inconsistency. While the company surely has a prosperous future ahead, the stock looks pricey -- particularly after its recent surge.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.