Better Buy: Shopify Stock vs. Lightspeed Stock

Shopify (TSX:SHOP) stock and Lightspeed (TSX:LSPD) stock both had their time in the sun, but which will feel the heat again?

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E-commerce stocks had a huge run during the last few years, but both Shopify (TSX:SHOP) and Lightspeed Commerce (TSX:LSPD) proved to be the ones to beat. Shares soared to all-time highs, with Shopify stock reaching $228 (adjusted for a stock split) and Lightspeed stock at $160 per share.

You’ll notice, of course, that those shares are no longer on offer by the companies. Shares have completely dropped for both Shopify stock and Lightspeed stock since then. But that’s not going to be the case forever.

Right now, we’re headed into a recession. By May, it will likely be official based on whether Canada’s gross domestic product (GDP) decreases or not. Yet once the recession is over, which could be in 2023 as well, we should see a rise in e-commerce growth once more and a rise in investor interest.

So, which of these two e-commerce companies are due for a faster and longer recovery? Today, we’ll look at whether Shopify stock or Lightspeed stock deserve your attention.

Shopify stock

Shopify stock is certainly one that deserves your attention if you’re looking for a company that’s become a household name — not just in the industry itself but in every household out there. We all wanted to be the one that purchased Shopify at $35 per share back in 2015. But, alas, such is life.

Shopify stock has made partnerships with everyone from major institutions and charities to your everyday small business. And there’s been growth recently. This comes from the company finally boosting its prices across the board by about 33%.

This certainly helps, but what’s still questionable are the moves the company made to get to this point. It seems it didn’t learn from other businesses, and it grew too much, too fast. As earnings came in fast and furious, the company hired more and more people. People who were eventually let go when things started to go south.

With so much dependent on the company’s share price, investors should keep an eye out on how Shopify stock plans to create cash in the future. Will it mainly be from investor interest? If so, it’s perhaps not the investment for you. But if it’s from acquiring businesses and growing through organic means, such as recurring revenue through merchant subscriptions, then it may be worth another look.

Lightspeed stock

It’s a different story for Lightspeed stock. There were questions arising that led to a short-seller report and the shift of position of the company’s founder after billions were made in acquisitions. Shares dropped 30% in a day after the report came out, leading eventually to this downgrade. However, now these acquisitions are up and running and doing quite well.

Meanwhile, e-commerce may have dropped for the company, but the drop in pandemic restrictions also led to an increase in retail and restaurant revenue. With the company still offering point-of-sale services, Lightspeed stock managed to not see as much trouble as originally predicted.

While Shopify stock saw earnings come below estimates after the last few quarters, Lightspeed stock has beat out those estimates for the last two. It has a strong balance sheet, trading at 0.83 times book value, with more than enough equity to cover debts — something Shopify stock cannot claim.

Lightspeed stock has taken on a land-and-launch approach that has simply done better than Shopify stock. Slow and steady seems to be winning the race now, with the company seeing less of a drop and remaining relatively stable. No major layoffs have been reported either.

Bottom line

Shopify stock will certainly recover, as will Lightspeed stock, but if you’re looking for a safer choice, I would go with Lightspeed stock today. Shopify has bells and whistles that have garnered attention, but it still needs to get its balance sheet under control — especially in a recession environment.

Meanwhile, Lightspeed stock looks like it’s in a stable position to ride out a recession, and we’ll likely continue to see growth out of a recession as well. With both earnings reports due soon though, investors should be able to see the difference for themselves.

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 has positions in Lightspeed Commerce and Shopify. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Lightspeed Commerce. The Motley Fool has a disclosure policy.

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