The downward dive of Shopify (NYSE:SHOP)(TSE:SHOP) stock from its pandemic highs raises concerns. The massive decline in shares of this Canada-based e-commerce giant has shaken investors’ confidence. While the current valuation suggests a good buying opportunity, analysts remain cautiously optimistic, as near-term margin headwinds could remain a drag on SHOP stock.
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Wall Street’s Stance on Shopify
Wall Street analysts have a mixed opinion on Shopify. Recently, Morgan Stanley analyst Keith Weiss decreased the price target on Shopify to $40 (48.48% upside potential) from $44 but reiterated a Hold rating.
Weiss explained that investors are concerned about fulfillment, meaning the ability to receive, store and dispatch inventory. Shopify is currently working on increasing its fulfillment capacity, but according to Weiss, “Building out fulfillment is likely just the beginning of a multi-billion-dollar investment cycle with a difficult path to significant operating profitability.”
He highlighted that there is significant competition between Amazon (AMZN) and Shopify due to their similar business models. Amazon has invested significantly in doubling its own fulfillment capacity in the past two years. He also pointed out that fulfillment may not boost Shopify’s earnings significantly.
On the contrary, RBC Capital Markets analyst Paul Treiber continues to be bullish on SHOP stock, with a Buy rating and a price target of $60 (with a huge 122.72% upside potential).
Despite the expected short-term volatility in SHOP stock, Treiber has a firm belief in the long-term growth potential of the company.
However, he stated that “Shopify’s merchants are likely to slightly decline Q3, similar to YTD trends.”
He further added, “Shopify Plus, Pay and POS are showing continued momentum, which help lift MRR and take rate.”
What was the Highest Stock Price of Shopify?
Shopify stock reached its all-time high of $176.29 in November last year. However, the stock has trended lower since then, declining about 80% over the past year. In fact, the stock is trading at its lowest level in the past three years, at $26.94.
As per TipRanks, analysts are both cautious and optimistic about SHOP stock and have a Moderate Buy consensus rating, which is based on 12 Buys and 13 Holds. Shopify’s average price forecast of $42.60 implies 58.13% upside potential.
However, SHOP stock has a negative signal from hedge fund managers, who sold 17.6 million shares last quarter.
Concluding Thoughts
Despite the waning popularity of the SHOP stock after the reopening of physical stores, the company continues to have strong growth potential. Further, the current levels present an attractive buying opportunity.
However, investors should take caution as lower consumer spending and investments in fulfillment could hurt margins and remain a drag in the short term.
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