Investors are forever looking around for multi-bagger investments. If you get your hands on one stock that is a long-term winner, you can retire wealthy. Think about investors who bet on Amazon after the dotcom crash.
There are so many other instances where stocks have generated millions for investors including Apple, Google, Netflix, and the more recent Shopify.
There is one Canadian tech stock that holds the potential to gain 1000% in the coming years. Lightspeed POS (TSX:LSPD) went public earlier this year and the stock has already doubled since its IPO in March 2019. Lightspeed is a “point of sale company that builds integrated e-commerce, hospitality and supply chain management solutions.”
Accelerating revenue growth
A stock’s key drivers are its revenue and earnings growth. Lightspeed increased sales by 35.1% to $77.5 million in fiscal 2019 (year ended in March). This revenue growth is set to accelerate. Analysts expect the company’s revenue to grow by 46.2% to $113.25 million in 2020 and 48.3% to $168 million in 2021.
Though currently unprofitable, Lightspeed will be increasing bottom-line at a robust pace. Its earnings per share are expected to rise by 94% in 2020 and 45.5% in 2021. In fact, it’s quite possible for Lightspeed to turn profitable by the end of 2023. A high-growth profitable company is a dream for most investors.
What will drive Lightspeed revenue?
Lightspeed is part of a high-growth industry. One Grandview research suggests that point of sale (or POS) services are expected to grow at an annual rate of 7.8% till 2025. At the end of the first quarter of fiscal 2020, Lightspeed is available in 51,000 customer locations in over 100 countries. Its gross transaction volume reached $15.6 billion in the last 12 months.
Lightspeed has achieved an annual growth rate of over 20% in new locations. It’s looking to enter new markets by leveraging sales and marketing expertise. In the first quarter, around 33% of sales were from markets outside North America.
The company has a cash balance of $191 million which is more than enough to service its debt of $13.5 million. It can also grow via acquisitions. Lightspeed recently acquired Europe-based iKentoo, which has over 4k customer locations and a strong presence in France, Switzerland and South America. iKentoo is a leader in POS solutions and business management systems in the hospitality space.
Is Lightspeed stock overvalued?
Lightspeed has a market cap of $3.33 billion, which means that the stock is trading at 29 times 2020 sales. Comparatively, Shopify has a market value of $40 billion and its stock is trading at 26 times 2019 sales. Shopify’s sales are estimated to grow by 43.2% to $1.54 billion in 2019 and 33.6% to $2.05 billion in 2020.
Lightspeed is trading at a premium valuation. However, the company’s robust growth rates support its lofty trading multiples. There’s a good chance that Lightspeed will decline a fair bit in upcoming months as markets are likely to be choppy. Here’s investors need to keep an eye on Lightspeed and buy the stock at every dip.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. Shopify is a recommendation of Stock Advisor Canada.