It’s hard to be evenhanded sometimes when it comes to growth stocks. There is a certain amount of emotion lurking in those wide margins and high price estimates. But it pays in the longer term to delve beneath the veneer of bullishness when perusing lists of tickers bound for glory. Today we will take a look at why there is both good and bad in the data for Lightspeed POS (TSX:LSPD).
A mixed quarter but an overall buy
One of Canada’s most promising tech stocks to buy for the upside, Lightspeed has seen revenue growth and a broadening customer base in 2020. Not bad for a year that has seen the majority of businesses chewed up in the jaws of a destructive market. In fact, its results during the second quarter were more than not bad. The company’s Q2 revenue growth hit 51%.
But Lightspeed has its cons as well as its pros. Tech investors with low risk appetites need to go over its most recent quarterly report before getting invested and check the story behind the ticker. For one thing, Lightspeed is exposed to retail and risk-laden restaurant businesses. For another, despite that 51% growth in revenue, Lightspeed’s net loss actually widened during the second quarter.
However, Lighstpeed’s greatest strength is arguably its geographical diversification. During the second quarter, Lightspeed increased its international reach a little further through a pair of key acquisitions. This makes the stock a buy for investors who purposefully look for synergy building growth by acquisitions. International regions covered by the Q2 push include Switzerland, Australia, and New Zealand.
According to CEO Dax Dasilva, “Our recent acquisitions not only fortify our leadership in geographic coverage, but we are thrilled that high-performing companies and their talented teams are eager to join forces with us as we tackle our massive market opportunity of building a truly global platform.”
Weighing up value in tech stocks
Taking an evenhanded view of a company requires taking the rough with smooth. Investors should therefore balance that Q2 loss with the prospect of a growing global presence. It’s also a matter of post-pandemic bullishness. Check your stance on a recovery before buying Lightspeed, in other words. The clue is in the company’s name: POS. If you’re not sold on a post-COVID-19 sales recovery, look elsewhere.
Other than that, value is the key determinant. While this name has exhibited strong upward share price momentum (Lightspeed is up +50% in the last three months), it’s negative year over year. Therefore, investors should decide whether they liked Lightspeed for a 7% dip last summer. While its balance sheet is squeaky clean, growth by acquisitions could be limited.
But compare Lightspeed with another popular Canadian tech stock, such as Docebo. Lightspeed’s price to book of 8 times book is a little rich considering both its exposure to risky sectors and so-so growth prospects.
But Docebo’s P/B ratio is almost 40 times book. Not surprising, perhaps, considering share price growth of +200% in 12 months. In summary, then, Lightspeed has further to climb and could take off post-pandemic.
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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 Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool owns shares of Lightspeed POS Inc.