There's a New Hot-Shot Tech Stock. Should You Buy?

There’s a New Hot-Shot Tech Stock: Should You Buy?

Recently listed stocks with insufficient performance history to back up their potential can be risky. But this risk may come with a proportional reward.

Adam Othman

Adam is a value investor who is always on the hunt for fantastic undervalued companies that he can share with Motley Fool readers. He follows Warren Buffett and Charlie Munger's investment advice and has completed the Canadian Securities Course. When he's not investing, Adam can usually be found traveling or skiing.

Published June 16, 2023 1:00 pm EDT

Buying a company fresh on the TSX can be tricky. You can get lucky in the short term, enjoy an early optimism boost, and cash out before the stock stabilizes. You can also make a good long-term bet with a consistent growth stock that you can keep holding for decades. But it’s just as easy to get unlucky with a newcomer and buy something that may not produce good results in the short or long term.

So where does Lumine Group (TSXV: LMN) fit?

The company

Lumine Group is a newcomer to the venture capital market and among the tech stocks in Canada. It’s an acquisition-oriented company that acquires tech companies related to communication and media industries and made its first acquisition in 2014. It has relatively flexible market criteria and looks for vertical market/niche leaders with a diverse customer base.

The current portfolio consists of about 25 companies, 14 of which have been acquired since the beginning of 2020. The portfolio is quite diverse when it comes to geography and focuses on the acquired companies. This includes service orchestration software companies, transaction solutions, subscription services, a smart metering company, etc.

Even within the confines of two industries and focusing on mostly B2B businesses, Lumine Group has developed a portfolio that caters to a broad spectrum of entities, adding to its resilience. The Lumine ecosystem spans over 30 countries and over a thousand individual customers (businesses).

The company prides itself in leveraging best practices (over 250 of them) to govern the relationship with the acquired companies to best empower them without compromising their autonomy.

The stock

Lumine Group stock only started trading on the venture capital market in March 2023 and, so far, has risen only by about 8.5%. This is far slower than the tech sector’s compelling performance, which is enjoying a decent bull market phase right now over the same period that has pushed it up by over 17%. However, it’s too early to start comparing it to the rest of the sector.

One of the most promising things about this stock and its future prospects is its resemblance to Constellation Software, although with a relatively limited scope. It also looks for vertical market leaders, and despite its relatively smaller scale, it already has an impressive international presence.

If there is a reasonable probability that its long-term growth might mimic that of Constellation, that’s a compelling enough reason to consider buying this stock.

Foolish takeaway

Both the telecom and media industries are going through a major flux right now. The telecom industry is still struggling with worldwide 5G penetration and is getting ready for technologies like IoT to become more mainstream.

The media industry is living through the early days of a streaming service panic. In other words, it’s a good time to test the resilience of Lumine Group’s business model, which may help you predict its worth as a long-term holding.