Before You Buy Lightspeed: Here’s a Safer Stock I’d Buy First

Lightspeed stock is down 87% from all-time highs but remains a high-risk bet. Here’s another TSX tech stock to buy instead.

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In the last two years, Lightspeed Commerce (TSX:LSPD) has been among the worst-performing stocks on the TSX. Currently valued at a market cap of $3.2 billion, Lightspeed stock is down 87% below all-time highs. Similar to other high-growth tech stocks, Lightspeed shares have been impacted by rising interest rates, elevated inflation, and a sluggish macro economy, resulting in a steep selloff.

However, in late 2021 noted short-seller Spruce Point Capital released a scathing report, where it accused Lightspeed of inflating key metrics, which includes customer counts, gross transaction volumes, and total addressable market.

Moreover, Spruce Point questioned Lightspeed’s ever-changing definition of its average revenue per user. The short-seller also claimed the company’s acquisition spree had been plagued by growth issues and was used to cover organic growth challenges.

Lightspeed was accused of promoting its payments business, which has experienced “rapid margin decay.” Further, Spruce Point predicted Lightspeed may lose out to existing competitors such as Shopify as well as large players, including Amazon, as it lags in terms of e-commerce and omnichannel capabilities.

Spruce Point’s report should be taken with a pinch of salt, as it had a short position on LSPD stock. But if the accusations are true, Lightspeed stock may remain under pressure in the near term.

Alternatively, there is another TSX tech stock you can buy, which is a much safer bet compared to Lightspeed today.

The bull case for Softchoice stock

Valued at a market cap of $884 million, Softchoice (TSX:SFTC) is a TSX tech stock flying under the radar. Softchoice designs, implements, and manages multi-vendor IT environments, which is a large but fragmented market in North America and other global regions.

Softchoice is well positioned to benefit from multiple secular tailwinds, as enterprises continue to shift away from on-premise infrastructure and the growing adoption of cloud-powered solutions. The rising demand for remote work capabilities and integrated software applications is expected to be a key revenue driver for Softchoice in the upcoming decade.

Softchoice has increased sales from US$836 million in 2020 to US$928 million in 2022, which suggests it is priced at a cheap trailing price-to-sales multiple of 0.7 times.

Despite rising costs and lower enterprise demand, Softchoice reported healthy double-digit growth in Software & Cloud after accounting for currency fluctuations.

Andrew Caprara, Softchoice’s chief executive officer, said, “We continued to deliver strong growth in Software & Cloud, driven by solid customer growth and our ability to provide mission-critical and recurring revenue-generating software and cloud solutions. Along with our disciplined approach to managing the business, this enabled us to offset the impacts of the industry-wide decline in hardware sales.”

Softchoice pays shareholders a dividend

While sales are forecast to decline by 8% in 2023, it is estimated to rise by 17.2% to $1.34 billion in 2024. Additionally, adjusted earnings might expand from $1.07 per share in 2022 to $1.24 per share in 2024.

Priced at 12.3 times forward earnings, SFTC is among the cheapest tech stocks on the TSX. Due to consistent profit margins, the company raised dividends by 22% to $0.11 per share, which translates to a forward yield of 2.8%.

SFTC stock remains a buy and trades at a discount of 30% to consensus price target estimates.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends and Lightspeed Commerce. The Motley Fool has a disclosure policy.

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