What happened
Shares of Wix.com (WIX 1.14%) were up more than 10% this week after a broad rise in technology stocks and bullish sentiment from a Wall Street analyst. As of 2:32 p.m. EDT on Friday, the stock was up 10.3% on the week.
So what
This week, Morgan Stanley analysts initiated an overweight (which means buy) rating on Wix.com stock, with a price target of $339 a share. Wix currently trades at around $305 a share. With no material news out from the company, this upgraded price target was likely a big reason for the stock's move in the past few days.
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Another reason for investors to buy Wix stock was the bullish data that came out on Shopify (SHOP 4.13%), one of Wix's e-commerce competitors. Third-party data from RBC Capital Markets found that Shopify merchants grew 39% year over year in the second quarter, an acceleration from the growth it saw in the first quarter. Seeing as Wix offers similar e-commerce products as Shopify, investors may be inferring that Wix will see strong growth this quarter as well.
Now what
With the recent moves, Wix stock now trades at a trailing price-to-sales (P/S) ratio of 15.7 and has little history of profitability. Given this steep valuation, investors need to expect strong growth from Wix over the next few years if the stock is to put up positive returns for shareholders. If that fails to happen, the stock will likely be a big loser to the broad market over the next decade.
