After significantly underperforming in 2022, shares from the technology sector marked a rebound in 2023, reflecting the easing of inflation. Despite the recovery, TSX tech stocks like Shopify (TSX: SHOP) and Lightspeed (TSX: LSPD) continue to trade at a discount, providing a good entry near the current levels.
Both Shopify and Lightspeed have solid fundamentals and multiple catalysts to support long-term growth. Further, these Canadian stocks will likely recover swiftly, as macro headwinds subside. As both these stocks are trading cheap and have the potential to multiply shareholders’ wealth, let’s dig deeper to understand which could deliver higher returns.
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Shopify
Shopify provides infrastructure that supports multi-channel commerce. With businesses of all sizes moving toward omnichannel selling models, Shopify, with its innovative products, is poised to capitalize on this structural shift.
Despite a challenging macro backdrop, Shopify started 2023 on a solid note, led by the expansion of its merchant base across all geographies. Further, its GMV (gross merchandise volumes) increased by 15% in the first quarter (Q1), reflecting resilient consumer spending. Impressively, Shopify’s attach rate improved in Q1, indicating merchants are buying its multiple solutions. Also, the increased penetration of Shopify Payments is positive.
While Shopify’s innovative products are likely to drive its top line, the company announced the sale of its logistics assets to Flexport. The move is positive, as it removes concerns around increased capital requirements to build a logistics network and its impact on margins. Shopify also announced the reduction of its workforce by about 20% to reduce costs and drive sustainable long-term growth.
Overall, Shopify will likely benefit from higher e-commerce penetration, new product launches, an asset-light model, and its focus on driving profitability. It is trading at the next 12-month enterprise value/sales (EV/sales) multiple of 11.3 — nearly half of its pre-pandemic levels of 22.5, implying further upside potential.
Lightspeed
Lightspeed offers cloud-based solutions that enable omnichannel commerce. The ongoing digital transformation and higher spending by retailers and restaurant operators to modernize their legacy POS (point-of-sale) platform will likely drive demand for Lightspeed’s products.
Lightspeed has changed its go-to-market approach and focuses on two core products targeting retail and restaurants. Further, to achieve profitability, Lightspeed targets high GTV (gross transaction value) customers. It’s worth highlighting that high-value customers can adopt its multiple software modules, thus driving its average revenue per user, reducing the churn rate, and driving profitability.
Besides growing organically, Lightspeed’s focus on accretive acquisitions will drive its customer locations and new product development. Lightspeed stock is trading incredibly cheap. Its next 12-month EV/sales multiple of 1.6 is near the all-time low and reflects a significant discount.
Bottom line
Both Shopify and Lightspeed have solid businesses and will likely benefit from the digital shift. Also, an improvement in the economy will likely give a significant boost to the shares of these tech companies.
While Shopify’s large scale, wide product offerings, and strong international presence make it an attractive investment, Lightspeed’s focus on achieving profitability, solid organic sales, and significantly low valuation make it a more compelling long-term investment near the current price levels.
