Lightspeed Commerce (TSX: LSPD)(NYSE: LSPD) stock has been in a downward spiral for months. Currently trading for $64, it’s down 59% from its all-time high. The company’s problems got started when a short-seller put out a report accusing it of dubious accounting practices. Then, the company released its earnings, which beat on revenue but missed badly on EPS.
Finally, the company experienced a sector-wide tech selloff hit, which resulted in LSPD falling even further when it was already low. In this article, I will explore the factors leading to LSPD’s dramatic decline and try to determine whether it has a chance of recovering.
Why Lightspeed stock is falling
There are several reasons why Lightspeed stock is falling right now. One of the most prominent is a short report released by Spruce Point Capital. In the 125-page report, Spruce Point accused Lightspeed of a variety of misdeeds, including:
- Aggressively recognizing revenue.
- Ceasing to publish certain non-GAAP metrics that weren’t flattering to it.
- Having suspiciously strong growth in 2020, when the company’s competitors were on the decline.
None of Spruce Point’s arguments were smoking guns, but after the report was made, the damage was done: LSPD stock started falling precipitously.
A second factor contributing to LSPD’s severe decline was its second-quarter earnings release. The release did feature impressive revenue growth (193%); however, that was mostly due to the consolidation of new subsidiaries. Earnings missed by $0.10, and the net loss grew as a percentage of revenue. Investors didn’t take the release well and started selling the stock after it came out.
The final factor contributing to LSPD’s precipitous decline was sector-wide weakness in technology stocks. Stocks tend to correlate with other stocks–especially stocks in the same sector. LSPD, therefore, is highly correlated with other tech stocks, which have been very volatile lately.
Since November 19, the NASDAQ has fallen 2.6%. That’s not a huge decline, but a volatile stock like LSPD is going to decline more than its peers when sector-wide weakness kicks in. That’s exactly what happened — and what will probably continue to happen as long as tech stocks continue being volatile.
Is it still a buy?
Having looked at all the factors influencing LSPD’s stock price decline, we can begin to answer the question:
Is it still a buy?
For my money, the answer is no. I’ve been giving the stock generally favourable coverage since its 2019 initial public offering (IPO), but the earnings results for Q2 were very concerning to me. Sure, the company grew its revenue a lot, but it grew its costs even more. The ever-widening net loss is a major concern to me, especially when you look at the steep costs LSPD paid for some of its acquisitions.
Maybe in the long run this will all work out and investors will be rewarded handsomely. But for now, the beating LSPD is taking looks justified.
