Lightspeed (TSX:LSPD) Will Launch a U.S. IPO: Should You Buy?

Lightspeed POS (TSX:LSPD) stock fell 17% after rising 300% between April and August. The 17% drop was partially due to a market correction and partially due to its U.S. IPO plans. Should you buy the stock?

| More on:
Close up finger pointing into the ipo text with initial public offering concept.

Image source: Getty Images

Did you miss Lightspeed POS (TSX:LSPD) stock’s 300% rally from its March low? The recent market correction has given you a chance to benefit from its rally. Lightspeed stock fell 17% from its all-time high, as the company announced plans to launch an initial public offering (IPO) on the New York Stock Exchange. It expects to use the proceeds to strengthen its financial position and fund future growth strategies.

A little information about Lightspeed’s U.S. IPO

Lightspeed will issue 10,000,000 new shares from its treasury, and, in case of over-allotment, CEO Dax Dasilva and other insiders could sell up to 1,747,500 of their shares. As the new share issue dilutes the interest of existing shareholders, there could be a pullback in the stock. But this pullback would be temporary, as the new capital injection would drive the stock up.

You must be wondering why Lightspeed is launching a U.S. IPO. Is it in need of more capital? Lightspeed is pretty well financed, with $203 million in cash reserves and just $30 million in long-term debt.

The company is leveraging the market bullishness to raise more capital. Its Toronto Stock Exchange IPO in March 2019 turned out well. Those who invested in this IPO got a 130% return in less than two years. With such a strong track record, there is a high probability that its U.S. IPO could be oversold for a premium. The stock is currently trading at $40 on the TSX. If the U.S. IPO is priced at the current market price, the company could raise more than $400 million in equity capital.

What will Lightspeed do with the proceeds of the U.S. IPO?

Lightspeed provides point-of-sale (POS) solutions to retailers and restaurants. It recently expanded its e-commerce offerings by adding features like online payments, Lightspeed Capital, and shipments. These merchant solutions entail a higher cost, which could be met by new capital.

Like all Software-as-a-Service (SaaS) companies, Lightspeed earns revenue from subscription fees and transaction-based commissions. The company is in the early stages of growth and depends heavily on new customer acquisitions for revenue growth. The fastest way to acquire new customers is through the acquisition of competitors. There are more than 190 direct competitors in the POS, payments, and e-commerce software market.

The additional capital from the U.S. IPO could give it ample resources to acquire competitors. It can increase its market share, customer base, and global outreach by consolidating the fragmented market.

Should you buy Lightspeed stock now?

Lightspeed stock is currently trading at 28 times its sales per share. For a stock that is growing its revenue at an annual rate of 50%, this valuation is adequate. The stock’s valuation is still below Shopify’s, which is trading at 53 times its sales per share.

The capital injection from the U.S. IPO will accelerate Lightspeed’s growth. Moreover, the upcoming holiday season will bring in a seasonal boost in its transaction volumes, leading to higher commission revenue. This stock would thrive in the post-pandemic economy, as it is expanding its offerings beyond the physical stores to online stores. It is also broadening its customer base beyond retail and restaurants to golf clubs.

Lightspeed stock will surge alongside its sales. It is a good buy at $40 before it resumes to making new records.

Investor corner

If you haven’t yet invested your $6,000 Tax-Free Savings Account contribution, now is the time to buy. Invest $3,000 in Lightspeed right now. In the best-case scenario, the stock will resume its growth path and make a new high in the holiday season. Last year, the stock dipped in September and rallied in December.

Even if Lightspeed stock returns to its high of $48, it represents a 20% upside. This means you can earn $600 on your $3,000 investment.

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 Puja Tayal 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.

More on Tech Stocks

A data center engineer works on a laptop at a server farm.
Tech Stocks

Psst … 2 Tech Stocks I’d Buy Before Shopify

Shopify (TSX:SHOP) stock is great -- don't get me wrong. But these two tech stocks are great too, with more…

Read more »

Technology, internet and networking, security concept
Tech Stocks

1 Top Canadian Cybersecurity Firm on the Frontline Against Cyber Threats

Here’s the best Canadian cybersecurity stock you can buy now to benefit from the expected significant surge in demand for…

Read more »

Credit card, online shopping, retail
Tech Stocks

Should You Buy Lightspeed Stock After Its Q4 Earnings?

Despite its volatility, I expect Lightspeed to outperform in the long run due to its healthy growth prospects and cheaper…

Read more »

Shopping and e-commerce
Tech Stocks

Shopify Stock: Is $100 the Next Stop?

Shopify (TSX:SHOP) stock may be headed to the $100 level over the longer term if things fall into the right…

Read more »

Young woman sat at laptop by a window
Tech Stocks

Open Text’s Cloud Kingdom: A SaaS Stock for the Long Haul?

Here's why Open Text (TSX:OTEX) could indeed be a software-as-a-service stock that long-term investors may want to consider right now.

Read more »

clock time
Tech Stocks

Is Now the Right Time to Buy Shopify Stock?

Amid another dip, Shopify stock might be worth buying right now for investors who missed the post-earnings surge.

Read more »

Tech Stocks

Is BlackBerry Stock a Buy for June 2023?

Given its multiple growth drivers, I expect the uptrend in BlackBerry’s stock price to continue.

Read more »

Index funds
Tech Stocks

1 Canadian Tech Stock I’d Buy Before Shopify Stock

Shopify stock is still a good option, but this other tech stock could be even better, especially as it's up…

Read more »