2020 has been the year of growth stocks. Two of the most popular ones – Lightspeed POS (TSX:LSPD)(NYSE:LSPD) and WELL Health Technologies (TSX:WELL) – have delivered stunning returns in just a few months. Now, growth-hungry investors must consider which one is better for the long-term. Here’s a closer look.
Lightspeed stock is up 29% year-to-date. The company lost 67% of its value in the first few months of 2020 as investors recognized the threat of coronavirus to Lightspeeds payment processing business. Fortunately, the team pivoted away from brick-and-mortar retail just in time to rescue itself. The stock is now up more than 296% since late-March.
Lightspeed is now $4.27 billion, making it one of the largest tech companies in the country. Fortunately, there’s plenty of room for growth ahead. Research suggests the global payment processing market could be worth US$120.7 (C$159) billion by 2025. Unfortunately, this arena is bitterly competitive and relies on slim margins.
Online payment processing is already dominated by heavyweights from the United States. The world’s largest e-commerce company, Amazon, has its own payment processing solution. The second-largest, Shopify, also has a homegrown option. Then there’s Adyen, Nuvei, Stripe, PayPal, Square and countless others from across the world.
This intense competition limits Lightspeed’s potential. If the company can cling on to a few percentage points of the future market, it could perhaps justify its current valuation. However, that would simply mean it’s priced-to-perfection at the moment.
WELL Health stock
By comparison, the global health tech market is much bigger and regulatory hurdles limit competition. If you’re looking to offer virtual healthcare appointments or store medical data, you need to comply with several federal and provincial standards. That limits the market to a handful of well-funded players.
WELL Health is by no means a dominant player in this industry. In fact, two of its biggest rivals in the U.S. merged earlier this year to create a company many times larger than it. However, the global telehealth market is expected to be worth US$559.52 (C$735) billion by 2027. So there’s plenty of room for multiple players.
You’ll also notice that the telehealth sector is growing faster and is expected to be worth roughly five times as much as the payment processing industry. These factors make WELL Health a comparatively better growth stock. At least in my opinion.
WELL Health stock has also outperformed Lightspeed year-to-date by a wide margin.
It’s been a great year for technology investors and growth seekers. The pandemic has accelerated the adoption of several digital technologies. That’s why Lightspeed POS and WELL Health Tech have been performing so well.
However, there’s a fundamental difference between these two industries. The global payment sector is more competitive and operates on slimmer margins. Meanwhile, telehealth is far less competitive and a far bigger market. That’s why I picked WELL Health stock for my personal portfolio and why I encourage you to take a closer look as well.
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.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Vishesh Raisinghani owns shares of WELL. David Gardner owns shares of Amazon. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Amazon, PayPal Holdings, and Shopify. The Motley Fool owns shares of Lightspeed POS Inc and recommends the following options: short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, and long January 2022 $75 calls on PayPal Holdings.