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Why Shopify Stock Just Dropped 5%

By Rich Smith – Updated Jul 21, 2020 at 1:34PM

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Is one day enough to prove a rumor wrong?

What happened

It's been less than 24 hours since Citron Research published its tweet heard 'round the stock market, predicting that e-commerce clearinghouse Shopify (SHOP 4.24%) would soon bring (STMP) beneath its corporate umbrella -- and sending Shopify stock soaring higher on the "news."

Already though, it seems investors may be getting impatient for the rumored buyout to happen. With little but crickets following Citron's initial announcement, enthusiasm for Shopify stock is already starting to wane, and the stock's down nearly 5% at 12:55 p.m. EDT. Stamps is holding up a bit better, roughly flat for the day, perhaps on the theory that even if Shopify doesn't buy it, someone else might.

Big red arrow over a stock chart

Image source: Getty Images.

So what

Still, it's a shame Shopify couldn't hold onto its gains, too, especially as the only Shopify-specific news on the wires today is kind of good news for Shopify. This morning, investment bank Roth Capital raised its price target on Shopify stock to $800.

That's good news because up is better than down. It's also pretty good because Roth had generally nice things to say about Shopify.

For example, revenue growth among customers surveyed by the bank looks to be about 50% in the second quarter. If that proves correct when earnings come out next week, it would easily top consensus predictions for 40% growth. And more broadly, reports, Roth thinks that Shopify is and will remain a beneficiary of the shift to e-commerce shopping among consumers still avoiding going out in public because of the coronavirus.  

Now what

All that being said, Roth declined to raise its rating on Shopify stock beyond neutral. Moreover, even its new and improved $800 price target falls far short of the $956 and change that Shopify stock costs today. Indeed, if you take a jaundiced view of Roth's comments, you could even say that the analyst is forecasting a 16% or worse decline in Shopify's stock price despite all the revenue growth it's enjoying.

In the absence of an even bigger revenue boost from the merger that Citron predicted -- which still hasn't happened, and may not -- that worry that Shopify stock is overvalued may weigh even heavier on Shopify shares today.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Shopify and Twitter. The Motley Fool recommends The Motley Fool has a disclosure policy.

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