Growth stocks finally got a taste of reality yesterday. It might have been just a temporary blip or a signal of a broader market sell-off to come. The fact is, the market was probably due to correct coming into the fall. The S&P 500 just hit all-time highs, and the TSX is trading only 7% below its all-time highs set in February.
Growth stocks were due for a correction
With concerns around a pandemic resurgence, weaning economic fiscal and monetary stimulus, and, of course, the U.S. election, markets were due for some sort of correction. Consequently, the recent volatility is not really a surprise.
If you felt like you missed the massive rally from March, then now may be the time to load up for the long term on some quality growth stocks. Got a few thousand dollars to invest? Here is my top growth pick to buy in September or on any major pullback.
Put $1,000 to work in this top growth stock
Lightspeed POS (TSX:LSPD) is a growth stock that Canadians should have on their radar. It provides an omni-channel point-of-sales system for retail and hospitality merchants. From hitting lows in March, this stock has had a momentous 258% recovery. Despite that, I still believe this stock has some serious traction for growth now and in the future.
Lightspeed has a solid business model
Lightspeed has strong business model, where 90% of its revenues are subscription based and recurring. Many investors were worried about the stock when store-front retailers and restaurants were closed in March. However, Lightspeed’s revenues were largely unaffected and customer churn was lower than expected.
In fact, Lightspeed’s omni-channel sales software proved pivotal to its merchants during the pandemic. Merchants need diverse sales channels that incorporate e-commerce, apps, loyalty programs, and delivery/pick up optionality with a store-front business.
Growth hasn’t slowed in 2020
Consequently, Lightspeed has seen an acceleration in customer adoption since the pandemic. In its first quarter 2021, this stock saw revenue growth of 51% year over year. While revenues were on par with last quarter, it did narrow its adjusted EBITDA loss to only ($2.2) million. Gross transaction volumes related to e-commerce increased by almost 100%! The point is, despite COVID-19 challenges, this business continues to see growth, and so should the stock.
Lightspeed has a solid balance sheet with a net cash position of about $175 million. Not only is this a nice safety net, but it also affords the ability to keep developing creative merchant solutions. It also give Lightspeed the capacity for geographic and vertical expansion through acquisition.
More services, healthier merchants
Lightspeed has developed some really useful services to help support its merchants. One service is Lightspeed Capital. It provides merchant financing/cash advances, and then gets a portion of their sales until the loan is paid off.
This type of program has been successful with other payments providers like Shopify and Square. If Lightspeed fully internalizes and deploys this service, it could meaningful contribute to revenue growth over the next few years.
Likewise, it has developed new merchant tools that enable curb-side pick-up, contactless payment, digital wallets, and retail analytics. Also, it recently announced a new service offering for restaurants that integrates digital menus, delivery optionality, bookings, and social media in one platform.
In a new digital era, these technologies are crucial for retailers and restaurants ability to survive and thrive. As a result, I believe Lightspeed stock should benefit from strong growing customer demand.
The Foolish takeaway
The stock was down 8% yesterday. That’s sounds like a decent opportunity to jump in on the long-term growth prospects of this top stock.
