Actions of Shopify (NYSE: STORE) and Axon Company (NASDAQ: AXON) have moved in opposite directions this year. The former has fallen 4%, while the latter has gained 48%. Both stocks recently had their price targets raised by Wall Street analysts.
On Sept. 17, Dominic Ball of Redburn Atlantic upgraded Shopify from neutral to buy and raised his price target to $99 per share. That forecast implies a 32% upside from the company’s current share price of $75.
On September 12, Trevor Walsh at JMP Securities raised its target price Axon Enterprise's stock price will rise to $430 per share, representing a 12% increase from the current stock price of $383.
Here's what investors need to know about Shopify and Axon.
1. Shopify
Shopify offers an end-to-end solution for commerce. Its platform helps merchants manage sales and inventory across physical and digital stores, including online marketplaces, social media, and custom websites. Shopify also offers adjacent business services such as payment processing, logistics, and marketing software.
Research company Gartner recognized Shopify as a leader in its latest digital commerce report. Analysts cited strong functionality across retail and wholesale, momentum with larger merchants, and rapid innovation as key strengths. Forrester Research recognized Shopify as a leader in its latest wholesale commerce report, citing its extensive artificial intelligence (AI) capabilities and tools as key differentiators.
Shopify reported strong second-quarter financial results despite the uncertain economic backdrop. Revenue rose 21% to $2 billion due to strong sales growth in subscription software and merchant services. Meanwhile, non-GAAP earnings rose 85% to $0.26 per diluted share. Momentum with large international and offline merchants, three areas Shopify has focused its resources on, was particularly encouraging.
Wall Street expects Shopify’s adjusted earnings to grow 25% annually through 2026. That consensus estimate makes the current valuation of 73 times adjusted earnings look a bit pricey, but Shopify justifies a premium. Its retail e-commerce market share is 10% in the U.S. and 6% in Western Europe, and it has barely tapped into what management sees as an $849 billion potential market.
Patient investors may consider buying a small position in Shopify stock today. If the stock pulls back, take the opportunity to build a larger position through dollar-cost averaging.
2. Axon Enterprise
Axon is a public safety company that sells hardware and software to law enforcement, federal agencies, and commercial enterprises. Its portfolio includes Tasers, body cameras, and in-car cameras, which integrate with its software for digital evidence management, report writing, and real-time operations.
Axon has long dominated the market for conducted energy devices, so much so that the Taser brand has become synonymous with the product category. As a result, the company has a customer relationship with “a substantial number of state and local law enforcement agencies in the United States.” That has helped Axon secure a leadership position in body cameras and digital evidence management software.
Axon reported strong second-quarter financial results. Revenue rose 34% to $504 million, driven by particularly strong sales growth in software and services, and non-GAAP net income rose 9% to $1.20 per diluted share. The only disconcerting metric was the 41% increase in operating expenses that weighed on the bottom line, but Axon is spending money on product development that should bolster its market leadership.
For example, the company recently introduced a generative AI service called Draft One, which uses video data from Axon body cameras to write police reports. CEO Rick Smith recently told analysts, “Our customers’ response to Draft One is better than anything else I’ve seen.” He also expressed confidence that Axon will define the public safety category of generative AI software because it has the largest sensor ecosystem and therefore the most robust data.
Wall Street expects Axon’s adjusted earnings to rise 20% annually through 2025. That consensus estimate makes the current valuation of 85 times earnings look expensive, but investors will likely have to pay a premium to own a piece of this company. Axon is a leader in its core product categories, and the company has barely tapped into what management sees as a $77 billion addressable market.
Patient investors should consider buying a small position today. The stock is likely to pull back at some point and investors can use that opportunity to build a large position.
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Trevor Jennewine has positions in Axon Enterprise and Shopify. The Motley Fool has positions in Axon Enterprise and Shopify and recommends them. The Motley Fool recommends Gartner. The Motley Fool has a Disclosure Policy.
2 Great Growth Stocks That Wall Street Analysts Just Upgraded to Buy Now Status Originally published by The Motley Fool
