Tech stocks performed amazingly well in the last market crash. The whole sector recovered faster than any other, and some individual stocks have not just recovered, but have also shot past their pre-pandemic valuation. Shopify became too overambitious, and even became the largest security trading on the TSX. While its growth is still desirable, it’s not the stock you may want to invest $1,000 in.
Another problem is that right now might not be the best time to buy. Tech stocks didn’t just recover; they became oversold too expensive. Many of them are currently way overvalued, and may not fall to a fair valuation anytime soon. One thing that can knock them down to a desirable valuation is a market crash. And if another market correction comes to pass, one of the stocks you should keep an eye on in Lightspeed (TSX:LSPD).
Good use of $1,000
While Lightspeed is not a very mature stock compared to many others in the sector with decades of stellar dividend and growth history to prove their worth, the stock has a few strengths backing it up as a decent investment choice during another crash. It’s an e-commerce business, one of the most potent and rapidly expanding marketplaces, and had an IPO to rival Shopify’s, a rare feat.
During the first market crash, Lightspeed sunk nearly 73% from its pre-pandemic high, and while the stock hasn’t hit that point yet, it has grown over 262% since the crash. It means that if you had invested $1,000 in the company when it hit rock bottom, you’d now have $3,625 through capital growth. A growth like this in just five months is literally a once-in-a-decade kind of investment.
And if you lost your chance to invest in the previous crash, get ready for another one.
A strong company
The core product that Lightspeed offers is essentially a point-of-sale system, but it’s about more than just transactions. The company offers a fully integrated retail system, including e-commerce solutions, loyalty, payments, analytics, and accounting. The company is always introducing new features that allow retail businesses to set up/restructure their online business according to the latest industry trends.
It’s imperative because e-commerce is evolving — and consumer expectations are evolving with it. And if a retail system is not updated fast enough, the businesses that use it may start losing their customers because it’s unable to offer the services/features that customers are expected in this fast-paced world. This is one of the things at the core of Lightspeed’s strength. As well, the business is very client-centric.
Lightspeed has a strong balance sheet. It has minimal debt, and has been steadily increasing its revenue. The operating income is slightly skewed because a significant chunk of the revenue goes into research and improving the product.
It’s too soon to say whether Lightspeed has the potential to become the new Shopify, but it’s still a stock worth having, especially when it’s on a discount during the next crash.
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 Adam Othman owns shares of Shopify. 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.