Why Lightspeed Commerce Stock Dropped 23% Last Month

Lightspeed (TSX:LSPD)(NYSE:LSPD) stock releases earnings this week, and after falling 23% in the last month, Motley Fool investors should watch carefully.

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Lightspeed Commerce (TSX:LSPD)(NYSE:LSPD) had a wild ride this autumn. After reaching all-time highs back in September, a short-seller report sent shares of Lightspeed stock plummeting. And despite no further news on the claims, Lightspeed stock remains down 23% since those highs over the last month.

What happened?

Lightspeed stock came crashing down after the Spruce Point Fund Management report. In it, the company claimed Lightspeed’s metrics were simply “smoke and mirrors,” that the slew of acquisitions hid the true figures, and that Lightspeed wasn’t creating as much revenue as expected.

Lightspeed stock, of course, denied the claims, and that’s what makes this week interesting. Lightspeed will announce its earnings report on Thursday, Nov. 4. When that happens, Motley Fool investors will likely be watching to see whether some new metrics get in the mix.

So what?

The surprising part is that shares of Lightspeed stock have been around $125 per share for the last several weeks. And that’s despite making several announcements and with an earnings report on the books.

Those announcements included “Lightspeed Restaurant,” which will integrate the analytics from a restaurant’s online store with the in-store experience. This came about after strong success in Europe. Further, Lightspeed rolled out “Lightspeed Capital” in the United States. And on top of that, it closed a few major acquisitions, putting them to work as well.

Before, Lightspeed stock would usually start to climb. But again, shares remain stagnant. So, it just goes to show that while there hasn’t been any tangible proof of the Spruce Point claims, investors are being careful.

But what should Motley Fool investors think of Lightspeed stock after last month?

Now what?

There are a few things Motley Fool investors should consider before buying up Lightspeed stock or, indeed, selling it. First, there hasn’t been any proof or further intrigue into the short-seller report, as far as we’re aware. The claims made merely pointed out poorly managed problems but didn’t offer many solutions.

After losing billions in its market capitalization, Lightspeed stock now remains at about $17.78 billion and is up 44% year to date as of writing. Furthermore, it’s incredibly expensive, even today. While there is a lot of promise for the future, it’s unclear whether that promise will actually be fulfilled.

And let’s face it; one thing Spruce Point was right about is the competition. Lightspeed is up again some major names in the e-commerce industry. And while Lightspeed’s acquisitions have been strong, and it has a handle on the restaurant industry, there’s only so far it can go.

Sure, it can boast being in more than 100 countries. And that is something. But it may run out of resources before it’s able to expand much further.

Foolish takeaway

As of writing, Lightspeed stock trades at an EV/EBITDA of -177. Its price-to-sales ratio is at 37.14, and its price-to-book is 6.9. This is an expensive stock still working to pay down a massive amount of debt.

And it has this short-seller report still looming over it. So, what Motley Fool investors should do is watch the earnings report for signs of the company repaying that debt — not just signs, in fact, but outright statements. The future outlook of this company will be one everyone pays attention to this week. So, make sure to watch very carefully.

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 Amy Legate-Wolfe owns shares of Lightspeed POS Inc. The Motley Fool owns shares of and recommends Lightspeed POS Inc.

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