Shopify isn’t the only game in town for Canadian investors looking to inject some serious growth into their portfolios. While the up-and-coming e-commerce play has enriched many, I think other smaller names in the space have more upside potential over the intermediate term.
As an investor, you need to skate to where you think the puck is headed next, not to where the puck is at right now. While Shopify still has plenty of growth left in the tank, with shares now priced north of $400, I think the risk/reward scenario is questionable after the stock had run out of momentum in recent months.
For those looking to score the next big tech darling in the Canada’s version of Silicon Valley (which receives far less coverage from the mainstream media), consider Lightspeed POS (TSX:LSPD), a commerce-enabling firm that may be seen as a means for traditional retailers to level the playing field with their disruptive e-commerce counterparts.
With brick-and-mortar retailers closing up shop left, right, and centre, many investors are of the belief that it’s only a matter of time before digital retailers cause the remainder of the surviving physical retailers to go belly up.
Not all brick-and-mortar retailers are built the same, however. Some of them have embraced technology not only to keep pace with their digital disruptors, but to gain an edge over their physical peers. A lot of physical retailers are more robust than we give them credit for.
While retailers of yesteryear aren’t that tech-savvy and likely can’t compete as well as their counterparts in the arena of tech, the products and services provided by Lightspeed provide such physical retailers with an economical (meaning cheap and easy) means to not only co-exist with their digital disruptors but to compete and thrive against them.
Lightspeed provides a wealth of value-added services, including point-of-sale, inventory management, customer preference, e-commerce, and analytics solutions. Lightspeed isn’t just another POS service provider; it helps retailers, even the technologically inept ones, make it easy to keep up with the new age of retail.
In essence, Lightspeed is an e-commerce play and a big data play rolled into one. The company recently reported its third-quarter numbers that saw revenues soar 51% with EPS losses easing to $0.09. The mid-cap stock has a $2.2 billion market cap and a steep multiple at over 24 times sales and 10.6 times book. Shares are now down around 37% from their August highs and could be ready for another leg up, as the company continues to funnel cash into growth initiatives.
With respectable gross margins (at around 70%), minimal debt, and a recently rolled out payment solution, the stock has the potential to offer multi-bagger upside over the next few years. Shares aren’t cheap though and could be subject to massive downward moves though, so be sure to have dry powder to double down on the stock if they plunge back to the low $20 levels.
It can’t hurt to get some skin in the game today, though, as the stock will likely never trade at a multiple that one would consider anything short of absurd. Moreover, the lack of debt on the balance sheet leads me to believe the firm could lever up and take its growth to the next level should it choose to.
Stay hungry. Stay Foolish.
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Fool contributor Joey Frenette has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify and Shopify. The Motley Fool owns shares of Lightspeed POS Inc.