Shares of supposed growth stock Shopify (SHOP -1.72%) didn't grow in Thursday trading, closing the day down 3%. That probably surprised a lot of investors -- because Shopify stock got upgraded today.
In an early morning note, Evercore ISI raised its rating on Shopify stock to outperform and set a $1,770 price target on the stock -- a full $200 higher than the price Goldman Sachs had assigned Shopify stock just three days ago. In Goldman's note, the banker had praised Shopify as a stock "well positioned for the long term" but likely to suffer from weak sales and higher costs in the short term as Shopify upgrades its platform to improve customer experience.
Evercore, in contrast, agrees with Goldman on the stock's positives, calling Shopify "one of the highest quality assets" it covers and predicting long-term growth from a "powerful multi-year tailwind" (says TheFly.com). But Evercore sees little of the risk that Goldman fears in the near term, arguing instead that Shopify's valuation has been "dislocated" from intrinsic value -- implying the stock is a buy no matter what happens with sales or costs this coming year.
Problem is, Evercore's pooh-poohing of the risks facing Shopify seems to be flying in the face of investor concerns over the economy today. On the one hand, the omicron variant of the coronavirus is rampant, with multiple colleges announcing yesterday that they're moving finals online and hoping to send students home early. On the other hand, the Fed just announced plans to raise interest rates three times in 2022 (as opposed to previous predictions of zero times) -- and raise rates three more times in 2023.
Such economic tightening -- which tends to reduce the flow of money into the economy -- is being imitated around the globe, too, with the Bank of England, for example, announcing an immediate hike in interest rates to 0.25%, and the European Central Bank saying it will reduce asset purchases (the result of which would also be less money flowing into the economy).
While such moves may be necessary to stem the rise in inflation rates, they're also likely to slow economic growth -- and shopping -- which is, after all, built into Shopify's name. On balance, therefore, I have to think Goldman Sachs has the better of this argument, and Evercore ISI is upgrading shares of Shopify at exactly the wrong time.