Better Buy: Shopify Stock vs. Lightspeed

Shopify and Lightspeed stocks are trading incredibly cheap, have multiple growth catalysts, and will likely recover fast as the economy improves.

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The top TSX stocks, especially from the technology sector, lost substantial value in 2022. However, the easing inflation and an expected slowdown in interest rate hikes in 2023 could lead to a steep recovery in tech stocks like Shopify (TSX:SHOP) and Lightspeed (TSX:LSPD). 

Both these companies have solid fundamentals and are poised to recover fast, as the operating environment improves. Further, these Canadian stocks are trading cheap, well below their historical average, which makes them an attractive investment at current levels.

As both these Canadian stocks have the potential to multiply shareholders’ wealth and are trading cheap, let’s examine which could deliver higher returns.

Shopify 

Shopify offers tools that support multi-channel commerce. With businesses transitioning towards multi-channel selling models, Shopify is poised to capitalize on this structural shift with its innovative products like Payments, Capital, and Markets. 

While the soft near-term outlook has weighed on Shopify stock, its growing market share in U.S. retail, strong revenue growth, despite tough comparisons, increased penetration of payments, and expansion of (point-of-sale) POS offerings to new markets augur well for growth. 

The strength in Shopify’s business, its expansion of marketing and sales channels through partnerships with top social media giants, solid adoption of new products, and increasing geographical footprint indicate that the e-commerce giant will likely outperform the broader market in the coming years. 

Shopify stock is trading at a next 12-month enterprise value/sales (EV/sales) multiple of 8.1, which is much below its historical average of 20.5, implying a solid upside potential in the long term. 

Lightspeed 

Lightspeed offers a cloud-based platform that supports omnichannel commerce. With the expected improvement in the economy, retailers and restaurants are likely to spend more on technology to provide their customers with the omnichannel experience, which will drive demand for Lightspeed’s products. 

As small- and medium-sized businesses modernize their legacy POS platform and expand to new locations, Lightspeed will likely deliver solid growth with its two core products targeting retail and restaurants. Also, Lightspeed is targeting customers with high GTV (gross transaction value). This strategy will likely drive its average revenue per user (as high-value customers can use more of its software modules) and reduce the churn rate. 

It’s worth highlighting that Lightspeed currently processes only a small portion of its gross transaction volumes through its payment solutions. This indicates that the company has solid organic growth opportunities ahead. Also, its ability to acquire and integrate companies, geographic expansion, and new product launches augur well for growth. 

While Lightspeed has multiple growth catalysts, its stock is trading the next 12-month EV/sales levels.  

Bottom line

Both Lightspeed and Shopify are trading cheap, have fundamentals, and will likely recover fast as the economic environment improves. However, given Shopify’s large scale, broad product offerings, strong international presence, and ability to defend and grow its market share, it looks more compelling long-term investment at current levels. 

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

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