Lightspeed POS (TSX:LSPD) Stock Gains 5X: Should You Buy Now?

Should you buy Lightspeed POS stock at the current levels and pay over 20 times its sales?

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Shares of Lightspeed POS (TSX:LSPD) have skyrocketed after hitting its 52-week low in March. Its stock’s previous close of $48.75 reflects about a fivefold increase (or 364% growth) from its low of $10.50 on March 19. 

The staggering growth in Lightspeed POS stock reflects the acceleration in demand for its solutions amid the pandemic. Lightspeed’s platform strengthens the omnichannel capabilities of SMBs (small- and medium-sized businesses) by managing payments, the supply chain, and e-commerce. The company’s customer base recorded over 50% growth year on year in the most recent quarter. The pace of growth in its gross transaction volume is also stepping up. 

While the rapid shift of SMBs toward omnichannel platform is likely to drive demand for Lightspeed’s products and solutions and support its growth, its high valuation is a concern. Lightspeed POS stock trades at a forward EV-to-sales multiple of 20.4, which is higher than most of its Canadian tech peers. 

So, should you buy Lightspeed POS stock at the current levels and pay over 20 times its sales, especially amid uncertainty? 

Will growth sustain?

Lightspeed’s top line has grown at a stellar rate over the last three years. Besides, its revenue-growth rate has accelerated year on year, which is encouraging. The structural shift in selling models with online and digital strategies presents a multi-year growth platform for Lightspeed. Moreover, Lightspeed remains well positioned to benefit from the secular industry tailwinds and a large and underserved SMB market. 

I believe Lightspeed’s customer base could continue to mark strong growth, thanks to the rapid migration of SMBs from traditional POS (point of sales) to Lightspeed’s cloud-based omnichannel POS. Also, Lightspeed’s continued investment in marketing and product innovation is likely to drive new customer locations to its platform. 

Also, Lightspeed’s strategy to expand payments and financial solutions offerings beyond North America and increased penetration into existing customer base is likely to support growth. Further, strategic acquisitions are likely to expand its product offerings, help in entering newer markets, and grow its customer base and further accelerate its growth.

The higher demand for Lightspeed’s core POS offering could accelerate growth in its premium products and solutions, including analytics, loyalty, and accounting, and support its average revenue per customer. 

Final thoughts

Overall, the growth in Lightspeed’s top line is likely to sustain in the coming years, which should support its stock. Its recurring revenues remain strong and are growing at a breakneck pace, providing greater visibility for the future. 

However, investors looking for a great value in a tech stock should stay away from Lightspeed POS and could wait for a pullback or consider buying the shares of Absolute Software and Enghouse Systems. Shares of Absolute Software and Enghouse Systems are currently trading at a lower EV-to-sales multiple of 4.3 and 6.8, respectively.

However, investors willing to look beyond valuations and focus on growth should buy and hold Lightspeed POS stock for the next decade to generate exceptional returns. Shares of Lightspeed are expected to gain big from the rapid migration toward omnichannel POS. 

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 Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool owns shares of Lightspeed POS Inc. The Motley Fool recommends Enghouse Systems Ltd.

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