Canadian tech stocks—the stalwarts of the recent broad market rally, are increasingly showing signs of weariness recently. The tech sector continued to plunge for the fourth straight day on Tuesday, taking the TSX Index lower along with it. The weakness is very much on the expected lines after a steep rally, and further correction can’t be ruled out completely. Let’s see what’s in store for investors.
The biggest beneficiary of the pandemic
Shopify’s financials and its stock price have been a massive divergence for the last few years. The stock’s rally has been much steeper compared to its earnings or even revenue growth. Notably, Shopify stock looks overvalued even after its 20% decline.
Shopify has undoubtedly been one of the biggest winners of the pandemic. Its second-quarter revenue growth highlighted the increased demand from small businesses to go digital. A large addressable market and the booming e-commerce sector will likely continue to underpin its growth.
The recent dip is certainly a buying opportunity for long-term investors. Shopify stock has given a very few of such opportunities in the past. I have seen many investors that kept procrastinating and envying on Shopify’s epic rally.
Top TSX tech stock Lightspeed POS
Lightspeed POS (TSX:LSPD) stock fared relatively better in the recent tech turmoil. It lost around 11% since last week and is up about 20% so far this year.
A $3.4 billion tech company Lightspeed offers a cloud-based software platform to small- and medium-sized businesses. It improves customer management, payments, analytics, and better operations management.
Lightspeed has seen superior revenue growth in the last few quarters. It has been expanding its e-commerce solutions amid the pandemic.
However, Lightspeed is still a much smaller fish in a huge pond. Shopify’s revenues last year were $1.6 billion, while Lightspeed’s revenues came in at $120 million.
A dark horse in the ride-hailing industry?
Shares of climate-friendly Canadian ride-hailer Facedrive (TSXV:FD) were also at the receiving end recently amid the tech rout. They tumbled almost 30% since last week. Smaller tech stocks were even more vulnerable in the sector’s weakness recently. This $1.3 billion tech company stock is still up more than 600% year to date.
Facedrive is a newcomer in the ride-sharing industry with a motive of a greener future. It offers riders options like EVs, hybrids, and traditional gas-fuelled cars. Facedrive’s environment-friendly positioning is expected to entice an increasing number of millennials, which could help it gain market share from the established players.
Facedrive is aggressively expanding into food delivery and corporate ride-sharing verticals. The pandemic and travel restrictions could have delayed its growth plans. However, it could be a dark horse in this flourishing transportation-as-a-service industry.
I’m keeping a close eye on its upcoming quarterly earnings. Its revenue growth in the last couple of quarters was highly inspiring, and a continued performance for the next few quarters will give more clarity about its growth path ahead.
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 Vineet Kulkarni 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.