Growth-oriented investors in Lightspeed POS (TSX:LSPD)(NYSE:LSPD) stock may double their money over the next few years. The Canadian tech firm’s quick business transformation over the past nine months has primed it for strong market share growth in core segments. The company has expanded product offerings tap into new growth frontiers and Lightspeed POS’s stock price could rise as the business exponentially grows over the next two to three years.
Lightspeed POS core business is growing
Lightspeed POS marketed its initial public offering (IPO) to stock investors last year. Its core business offerings involved cloud-based omnichannel point-of-sale offerings for small and medium-sized retailers and restaurants, with some e-commerce integration for retail outlets.
Management estimated the company’s total addressable market at about $113 billion annually. This number was calculated from an average monthly revenue of $200 per customer. The target market included about 147 million small and medium-sized retail and restaurant outlets.
Fast forward to June 2020 and the Montreal firm’s average revenue per customer has grown to $230 per month. Increased uptake of the company’s innovative e-commerce offerings during COVID-19 pandemic shutdowns propelled average revenue growth.
As the company’s average customer buys more service offerings, so, too, does the size of its addressable market. Given the same 147 million potential customers of 2019, Lightspeed’s TAM has grown by 15% to $130 billion in under 18 months.
Although the company operates in a highly fragmented market with over 190 competitors, it has a much larger market in dollar terms to attack. Most noteworthy, recent equity raises give it more dry powder to pounce on privately run acquisition targets as it tries to consolidate its legacy market (more on this shortly).
That said, I like its new growth verticals better.
An innovative LSPD transformed its business offerings in 2020
The introduction of eCom for Restaurants during the pandemic was a timely solution to a needy segment. The suite enabled traditional restaurants can serve diners in a completely contactless process, giving them a better chance of surviving any second or third waves of the coronavirus lockdowns. Average revenue per customer is growing as existing subscribers buy added essential offerings.
However, this wasn’t the only innovative product offering the company introduced during the year to grow its revenue line. New e-commerce enabling features were added to the menu.
Lightspeed Payments, is a new payment processing platform that rivals PayPal, Square, and Shopify‘s offerings. Launched for U.S. clients in February 2019, the product was a grand entry into a growing multi-trillion global payments industry. The company can leverage on its existing 77,000 plus client outlets to grow its gross payments processing volumes exponentially.
It will enjoy the spoils of an expanding global payments market as the world increasingly embraces e-commerce. Emerging economies — and their vast populations — are embracing e-payments at a rapid pace too.
There’s more. The company introduced Lightspeed Capital in August this year. This is a short-term financing product for existing users of its retail commerce platforms in the U.S. As I see it, the company is increasingly going after Shopify’s business model. This strategy is brilliant, as it allows LSPD to defend its retail point-of-sale market while attacking the market leader in e-commerce platforms, payments processing, and business lending fronts.
Can Lightspeed POS stock double your money?
Analysts expect Lightspeed POS’s revenue line to grow by 32% annually over the next three years. The company’s most recent sales growth rate was in 51% year-over-year range last quarter. Most of this revenue is recurring.
Even more exciting, the tech firm can surpass the above growth rates through acquisitions after recent capital raises. New financings are dilutive, but the company has demonstrated an ability to raise new equity at price-to-sales multiples as high as 20 times. It acquired point-of-sale company Gastrofix in January this year at a price-to-sales multiple below 10 times. The company can grow its business faster than it is diluting shareholders.
Acquisitions aside, a compound annual revenue growth rate of 32% means that the company can organically double its annual revenue run rate within the next 36 months.
Given such high revenue growth rates and high valuation multiples, Lightspeed POS stock can double your money within three short years. Shares could do better if sales growth translates to positive cash flow and profits during the investment period — a very likely scenario.
