Lightspeed Stock: Should You Buy?

I believe the recent pullback in Lightspeed stock represents a solid opportunity to buy a fundamentally strong company.

| More on:
thinking

Image source: Getty Images

Lightspeed Commerce (TSX:LSPD)(NYSE:LSPD) stock fell about 28% since reporting its Q2 results last week. Furthermore, its stock is down about 47% from its peak. The significant decline in Lightspeed stock reflects the deceleration in organic growth, expected slowdown in revenue growth rate, and higher Q2 losses. 

Notably, Lightspeed stated that its core business drivers remain strong, reflecting growth in customer base, GTV (gross transaction volume) expansion, increased payments penetration, and software adoption. 

However, it forecasted Q3 revenues in the range of $140 to $145 million, reflecting a sequential moderation in growth rate. It’s worth noting that Lightspeed’s Q2 revenues increased by 15% on a quarter-over-quarter basis. Meanwhile, its Q3 projection reflects a quarter-over-quarter growth rate of 5-9%. 

Moreover, Lightspeed forecasts FY22 revenues in the range of $520 to $535 million that reflects a further decline in sales growth rate on a quarter-over-quarter basis. 

Now what?

I believe the expected slowdown in Lightspeed’s growth rate shouldn’t surprise much, especially with tough year-over-year comparisons. While I acknowledge that Lightspeed’s organic growth rate decelerated sequentially in Q2, it remained solid.

In response to the concerns related to the economic reopening, Lightspeed’s CEO Dax Dasilva stated that the economic reopening favours Lightspeed. The company witnessed strong demand for retail and hospitality offerings in North America and Europe, respectively. 

Looking ahead, I expect the ongoing shift in selling models and growing adoption of omnichannel platforms will provide a multi-year growth opportunity for Lightspeed. Meanwhile, the momentum in organic sales and benefits from recent acquisitions will likely support its revenues. Also, Lightspeed’s focus on acquiring new customers, growing adoption of its cloud-based system, and expansion into new geographies and verticals will drive its addressable market and, in turn, its growth.

Another key highlight is the strength in its ARPU (average revenue per user). With the increased number of its existing customers adopting additional modules, its focus on two core platforms (including retail and restaurant), continued investments, and improving retention rate will likely support its ARPU and cushion its margins.

Lightspeed remains well capitalized to drive future growth. Moreover, its mix shift towards recurring subscriptions and transactions-based revenues augur well for growth.

The bottom line 

I am bullish on Lightspeed, and I believe the recent pullback in its share price represents a solid opportunity to buy a fundamentally strong company to capitalize on the ongoing shift towards omnichannel platforms. 

I expect Lightspeed’s organic revenues to grow at a healthy pace, while improved ARPU will likely cushion its margins. Furthermore, the expansion of Lightspeed Payments to capture more GTV presents a significant growth opportunity. Also, its focus on strategic acquisitions will likely expand its market penetration, accelerate product development, and help the company enter into new growth verticals.

Thanks to the recent decline in its stock, Lightspeed trades at a next 12-month EV/sales multiple of 15.7, which is well below the pre-pandemic levels. 

Overall, secular industry trends, Lightspeed’s solid competitive positioning, growing scale, and low valuation make it an attractive long-term pick.

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 recommends Lightspeed POS Inc.

More on Tech Stocks

work from home
Tech Stocks

Could Lightspeed Stock Be a Big Winner in 2023?

Investors can capitalize on Lightspeed’s low valuation and benefit from the recovery in its price.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Tech Stocks

TFSA Passive Income: How I’m Investing to Make $2,000/Year From Dividends

I am increasing my dividend income by investing in dividend stocks like the Toronto-Dominion Bank.

Read more »

Electric car being charged
Tech Stocks

Is Now The Time to Buy EV Stocks?

EV stocks may be down now, but don't count them out. They'll soon be back up again, so now may…

Read more »

Happy shoppers look at a cellphone.
Tech Stocks

Better Buy: Amazon vs. Apple Stock

While both Amazon and Apple have bright long-term prospects, Apple stock looks like the best tech company to invest in…

Read more »

A stock price graph showing declines
Tech Stocks

Has Blackberry Stock Finally Stopped the Slide?

Blackberry has not yet delivered the kind of financial results that we know it can, but this is about to…

Read more »

Car, EV, electric vehicle
Tech Stocks

Chinese Stocks are Soaring: This TSX Stock Could Gain

Magna International stock could benefit from China's economic re-opening.

Read more »

Money growing in soil , Business success concept.
Tech Stocks

1 Oversold Growth Stock to Buy for Major Returns in 2023

This growth stock could be the best Canadian stock to buy now for 2023, with shares possibly doubling back to…

Read more »

Hands holding trophy cup on sky background
Tech Stocks

Could BlackBerry Stock Be a Big Winner in 2023?

BlackBerry (TSX:BB) stock more than halved last year amid the tech stock selloff. Could 2023 be a winning year for…

Read more »