Shares of Shopify (NYSE: SHOP) and Axon Enterprise (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 at 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 Sept. 12, Trevor Walsh at JMP Securities raised his price target on Axon Enterprise to $430 per share. That forecast implies a 12% upside from its current share price of $383.
Here's what investors should know about Shopify and Axon.
1. Shopify
Shopify provides a turnkey solution for commerce. Its platform helps merchants manage sales and inventory across physical and digital storefronts, including online marketplaces, social media, and custom websites. Shopify also provides adjacent merchant services, like payment processing, logistics, and marketing software.
Research company Gartner recognized Shopify as a leader in its latest report on digital commerce. Analysts cited robust functionality across retail and wholesale, momentum with larger merchants, and rapid innovation as key strengths. Similarly, Forrester Research recognized Shopify as a leader in its latest report on wholesale commerce, citing its broad capabilities and artificial intelligence (AI) tools as key differentiators.
Shopify reported good second-quarter financial results despite the uncertain economic backdrop. Revenue increased 21% to $2 billion due to strong sales growth in subscription software and merchant services. Meanwhile, non-GAAP earnings increased 85% to $0.26 per diluted share. Momentum with large, international, and offline merchants -- three areas where Shopify has focused its resources -- was particularly encouraging.
Wall Street expects Shopify's adjusted earnings to increase at 25% annually through 2026. That consensus estimate makes the current valuation of 73 times adjusted earnings look a little pricey, but Shopify warrants a premium. Its retail e-commerce market share is 10% in the U.S. and 6% in Western Europe, and it has hardly tapped what management sees as an $849 billion addressable market.
Patient investors can consider buying a small position in Shopify stock today. If shares pull back, use the opportunity to build a bigger 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 conducted energy devices (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 name has become synonymous with the product category. Accordingly, 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 financial results in the second quarter. Revenue increased 34% to $504 million, driven by particularly strong sales growth in software and services, and non-GAAP net income increased 9% to $1.20 per diluted share. The only disconcerting metric was the 41% increase in operating expenses that dragged on the bottom line, but Axon is spending money on product development that should reinforce its market leadership.
For instance, the company recently introduced a generative AI service called Draft One that uses video data from Axon body cameras to draft police reports. CEO Rick Smith recently told analysts, "Our customers' response to Draft One is better than anything 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 increase at 20% annually through 2025. That consensus estimate makes the current valuation of 85 times earnings look pricey, but investors will likely need to pay a premium to own a piece of this company. Axon is a leader in its core product categories, and the company has hardly tapped what management sees as a $77 billion addressable market.
Patient investors should consider buying a small position today. Shares will probably 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 and recommends Axon Enterprise and Shopify. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
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