The economy turned out better than many would have expected in 2023. Thanks to the moderation in inflation and excepted stabilization in interest rates, Canadian tech stocks, including Lightspeed (TSX:LSPD), are witnessing a recovery.
While Lightspeed stock has grown nearly 20% year to date, let’s understand whether it makes sense to buy its shares near the current levels.
An overview of Lightspeed
Lightspeed provides a cloud-based commerce platform that enables businesses to engage with customers, accept payments, and manage their operations. The company primarily targets small- and medium-sized enterprises. Meanwhile, it offers two flagship solutions, including Lightspeed Restaurant (a unified hospitality commerce offering) and Lightspeed Retail (a commerce offering that unites advanced point of sale, payments, and e-commerce into one solution).
The company generates revenues through the sale of cloud-based software subscriptions and its payment solutions. Despite the macroeconomic uncertainty, Lightspeed generated total revenue of US$730.5 million in fiscal 2023, up about 33% year over year.
Factors that support my bullish view
Regardless of the weak macro environment, Lightspeed managed to deliver solid growth led by higher GTV (gross transaction volume) and GPV (gross payment volume). The company’s GTV increased 18% year over year in fiscal 2023. At the same time, its GPV was US$14.7 billion in fiscal 2023, reflecting a year-over-year increase of 81%.
Looking ahead, Lightspeed is expected to benefit from the ongoing digital shift. As the increased number of retailers and restaurateurs shift their businesses towards omnichannel platforms and start spending on the modernization of their legacy payments, the demand for Lightspeed’s products and services will likely grow, driving its overall financial performance.
Further, with an improvement in the economy and an increase in consumer discretionary spending, retailers and restaurateurs will expand to new locations and invest in technology, accelerating the demand for its products.
In addition, Lightspeed has changed its go-to market strategy and is selling only two core products with retailers and restaurateurs in focus. Under the new strategy, Lightspeed is targeting large customers with high GTV. Notably, customers with high GTV can use the company’s multiple modules. This will drive Lightspeed’s average revenue per user and result in lower churn. Furthermore, Lightspeed is streamlining its operations and is on track to achieve profitability.
Besides organic growth opportunities, Lightspeed focuses on accretive acquisitions, which drive its customer locations, enhance its market share, and help to expand its product base.
While the company’s fundamentals remain strong, its valuation looks compelling near the current levels. Let’s delve deeper.
Attractive valuation
While Lightspeed stock witnessed a recovery in the recent past, it is trading at a discounted valuation and is too cheap to ignore near the current levels.
It is trading at a next 12-month enterprise value-to-sales multiple of 2.1, which is significantly lower than the historical average of over 20. While its stock is trading cheap, the company is growing its revenues briskly, focusing on driving efficiency, and is on track to achieve profitability soon.
Bottom line
Lightspeed is well positioned to capitalize on the shift in selling models toward omnichannel platforms. Its high growth, growing scale, and low valuation make it an attractive investment near the current levels.
