Shopify vs. Axon Enterprise: Divergent Stock Paths and Investment Insights

The text analyzes the contrasting stock performances of Shopify and Axon Enterprise, highlighting recent analyst upgrades and the companies' market positions. It discusses Shopify's leadership in digital commerce and Axon's innovation in public safety, offering investment insights and potential opportunities for patient investors.
SummaryThe stocks of Shopify and Axon Enterprise have diverged this year, with Shopify’s shares decreasing by 4% while Axon has seen a 48% increase. Analysts have recently raised their price targets for both companies, with Shopify’s target suggesting a 32% upside and Axon’s a 12% increase. Shopify is recognized as a leader in digital commerce, showing strong financial results and growth prospects, although its valuation appears high. Meanwhile, Axon Enterprise, a leader in public safety solutions, has shown robust revenue growth and innovation in AI technology, despite increased operating expenses. Investors are advised to consider small positions in both companies, with potential opportunities to expand holdings if prices pull back. Additionally, although Shopify wasn’t included in the Motley Fool’s top stock picks, its potential in a vast market remains significant.

Shopify and Axon Enterprise: Divergent Paths and Investor Insights

This year, the stocks of Shopify and Axon Enterprise have taken markedly different trajectories. Shopify’s shares have dipped by 4%, while Axon Enterprise has experienced a robust 48% increase. Despite these opposite movements, both companies recently saw their price targets elevated by Wall Street analysts.

Recent Analyst Upgrades

Shopify

On September 17, Dominic Ball from Redburn Atlantic shifted his rating on Shopify from neutral to buy, raising the price target to $99 per share. This projection suggests a potential 32% increase from its current share price of $75.

Axon Enterprise

On September 12, Trevor Walsh at JMP Securities increased his price target for Axon Enterprise to $430 per share, indicating a 12% potential upside from its present share price of $383.

Let’s delve into what investors should know about these two companies.

Shopify: A Leader in Digital Commerce

Shopify offers a comprehensive solution for commerce, enabling merchants to manage sales and inventory across both physical and digital platforms, such as online marketplaces, social media, and custom websites. Additionally, Shopify provides related services, including payment processing, logistics, and marketing software.

Recognition and Performance

Gartner recently acknowledged Shopify as a leader in digital commerce, highlighting its robust functionality in both retail and wholesale sectors, as well as its momentum with larger merchants and rapid innovation. Similarly, Forrester Research recognized Shopify as a leader in wholesale commerce, emphasizing its broad capabilities and AI tools as key distinguishing features.

Despite facing an uncertain economic environment, Shopify reported strong second-quarter financial results. Revenue climbed 21% to $2 billion, driven by substantial growth in subscription software and merchant services. Non-GAAP earnings surged 85% to $0.26 per diluted share, with significant progress observed among large, international, and offline merchants—areas where Shopify has been focusing its efforts.

Future Prospects

Wall Street anticipates Shopify’s adjusted earnings to grow at an annual rate of 25% through 2026. Although the current valuation of 73 times adjusted earnings seems high, Shopify’s position justifies a premium. With a retail e-commerce market share of 10% in the U.S. and 6% in Western Europe, Shopify is still largely untapped in what management perceives as an $849 billion addressable market.

For patient investors, considering a small position in Shopify today might be wise. If the shares dip, it could be an opportunity to expand one’s holdings through dollar-cost averaging.

Axon Enterprise: Innovating Public Safety

Axon Enterprise is a company focused on public safety, providing hardware and software solutions to law enforcement, federal agencies, and commercial enterprises. Its offerings include conducted energy devices (Tasers), body cameras, and in-car cameras, all integrated with software for digital evidence management, report writing, and real-time operations.

Market Leadership and Financial Performance

Axon has long been the dominant force in the market for conducted energy devices, with the Taser brand becoming synonymous with the category. This stronghold has helped Axon establish leadership in body cameras and digital evidence management software, maintaining extensive relationships with state and local law enforcement agencies across the U.S.

In the second quarter, Axon reported a 34% increase in revenue to $504 million, fueled by robust growth in software and services. Non-GAAP net income rose 9% to $1.20 per diluted share. However, a 41% increase in operating expenses impacted the bottom line, as Axon invests in product development to bolster its market position.

One notable innovation is the introduction of Draft One, a generative AI service that uses video data from Axon body cameras to draft police reports. CEO Rick Smith expressed unprecedented customer enthusiasm for Draft One and conveyed confidence that Axon will lead the public safety category in generative AI software, supported by its expansive sensor ecosystem and comprehensive data.

Future Outlook

Wall Street projects Axon’s adjusted earnings to grow at a rate of 20% annually through 2025. Though the current valuation of 85 times earnings appears high, investors might need to pay a premium for a stake in this innovative company. Axon remains a leader in its core product categories and is only beginning to tap into an estimated $77 billion addressable market.

For patient investors, starting with a small position in Axon now could be beneficial. As shares may retract at some point, it presents an opportunity to increase one’s stake.

Investment Considerations for Shopify

Before investing $1,000 in Shopify, consider the following:

The Motley Fool Stock Advisor analyst team recently pinpointed what they believe to be the 10 best stocks for investors to buy now, and Shopify didn’t make the cut. The selected stocks have the potential to deliver substantial returns in the coming years.

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Henry Lawson
Henry Lawson

Henry Lawson: The Sage of Screen Stories

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