Lightspeed Stock: Should You Invest in February 2023?

Considering its deeply discounted stock price and growth prospects, I am bullish on Lightspeed, despite the near-term volatility.

| More on:
A worker uses a double monitor computer screen in an office.

Source: Getty Images

Amid improving broader market conditions, growth stocks are back on investors’ radars this year. Lightspeed Commerce (TSX:LSPD) is trading around 20% higher year to date. Despite the healthy buying, it still trades over 86% lower than its all-time high. So, let’s assess whether investors should start accumulating the stock amid signs of recovery.

Meanwhile, let’s first look at its performance in the third quarter, which the company reported earlier this month. 

Lightspeed’s third-quarter performance

Lightspeed’s third-quarter revenue came in at US$188.7 million, representing a year-over-year growth of 24%. However, on a constant-currency basis, the growth stood at 26% amid solid organic growth, driven by higher ARPU (average revenue per user), GTV (gross transaction volume) growth, and increased adoption of its payments.

Compared to its previous year’s quarter, the company’s ARPU grew by 20% while its total customer locations grew by 5%. The company witnessed 15% and 19% growth in customer locations that processed GTV of over US$500,000 and US$1 million, respectively. However, the number of customer locations processing GTV of $200,000/year fell during the quarter.

Its net losses came in at US$814.8 million, including US$748.7 million of non-cash goodwill impairment charge compared to $65.5 million in the corresponding quarter of the previous year. However, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) losses declined from US$7.1 million to US$5.4 million. As a percentage of revenue, its adjusted EBITDA fell from 4.7% to 2.7%, which is very encouraging.

Further, Lightspeed closed the quarter with cash and cash equivalents of US$838.1 million. So, the company is well positioned to support its growth initiatives.

Lightspeed’s growth prospects

Amid the expansion of e-commerce, more SMBs (small- and medium-scale businesses) are taking their business online. This secular shift has created a multi-year growth potential for Lightspeed. Also, the company’s products aid in improving their productivity, lower expenses, automate specific processes, and provide data-driven insights.

With customer locations that process GTV of over US$500,000/year growing in double digits, Lightspeed would focus on bigger businesses, which offer a lower churn risk and higher lifetime value for the company. The company is adding new modules, improving its penetration, and expanding its verticals to grow its customer base and ARPU. With the company’s gross payment volumes forming a small percentage of its GTV, it has substantial scope for expansion. Further, the company earns around 96% of its revenue from recurring sources, stabilizing its financials.

Along with top-line growth, Lightspeed is focusing on improving its profitability. It has reorganized and streamlined its operation, slashing 10% of its workforce. It has successfully integrated its recent acquisitions, which has helped lower its losses. Meanwhile, the company’s management has set a goal to achieve breakeven or positive adjusted EBITDA by the end of the next fiscal year. So, the company’s growth prospects look healthy.

Bottom line

Although Lightspeed has witnessed healthy buying recently, it still trades at attractive multiples. The company’s NTM (next 12-month) price-to-sales and price-to-book multiples stand at three and one, respectively. Considering its deeply discounted stock price and growth prospects, I am bullish on Lightspeed, despite the near-term volatility. So, investors with an investment horizon over three years can start accumulating the stock to earn superior returns.

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 Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends Lightspeed Commerce. The Motley Fool has a disclosure policy.

More on Tech Stocks

Tech Stocks

1 Under-the-Radar Beneficiary From the Rise of ChatGPT

ChatGPT will benefit AI-enabled stocks like Docebo (TSX:DCBO).

Read more »

Businessman holding AI cloud
Tech Stocks

TFSA: 2 AI Growth Stocks for Your $6,500 Contribution

Here are two of the best AI stocks to buy in Canada in 2023.

Read more »

edit Colleagues chat over ketchup chips
Tech Stocks

The Best Stocks to Invest $50,000 in Right Now

You can create a portfolio of undervalued stocks with $50,000 right now. Here are three such stocks you can add…

Read more »

Tech Stocks

The Safest Semiconductor Chip Stocks to Own in March 2023

Canadians can invest in two safe semiconductor chip stocks, as the country prepares to expand its industry presence and become…

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Tech Stocks

Market Tremors: Buy These ETFs While Everyone Else Is Selling

The US bank crisis has triggered a sell-off raising the risk of a stock market crash. It’s time to buy…

Read more »

Two colleagues working on new global financial strategy plan using tablet and laptop.
Tech Stocks

Treasure Hunting South of the Border: The 2 U.S. Stocks I’d Buy Today

Expand the horizon of your TFSA portfolio south of the border. Here are two stocks that have the potential for…

Read more »

Woman has an idea
Tech Stocks

The 3 TSX Stocks That Can Bring Home the Bacon Over the Next 10 Years

Given the favourable market conditions and their growth initiatives, I expect these three TSX stocks to deliver multi-fold returns over…

Read more »

A worker uses the cloud for paperless work. tech
Tech Stocks

3 Tech Stocks With More Potential Than Any Cryptocurrency

Three tech stocks are safer investment options and have more potential than Bitcoin and other cryptocurrencies.

Read more »