After losing substantial value in 2022, most of the Canadian tech stocks witnessed a recovery in 2023. What stands out is the stellar returns delivered by e-commerce giant Shopify (TSX:SHOP). It’s worth highlighting that Shopify stock has gained about 79% year to date. The durability of its revenues, its ability to grow its gross merchandise volumes, innovative products, and its focus on generating sustainable earnings led to a rally in its share price.
In comparison, shares of Constellation Software, Docebo, and Open Text have gained about 39%, 33%, and 26% year to date, respectively. The resilient economy, moderation in the inflation rate, and investors growing risk-taking appetite led to a recovery in these technology stocks.
While Shopify remains one of the top Canadian stocks to beat the broader market in the long term, the recent price surge might constrain its short-term upside potential. Thus, I’d consider investing in Shopify’s smaller rival, Lightspeed (TSX:LSPD), near the current levels.
Certainly, Lightspeed has left investors somewhat disappointed as it has gained only about 5.5% year to date and lagged behind its tech peers. Nonetheless, Lightspeed’s fundamentals remain strong, supporting its bull case. With this backdrop, let’s look at the factors that support my optimistic outlook on Lightspeed stock and understand the reasons that favour investing in this Canadian tech company over Shopify.
Lightspeed is well positioned to deliver strong growth
Lightspeed provides a cloud-based commerce platform specializing in point-of-sale (POS) solutions. Presently, the company is concentrating on two flagship products designed for retail and restaurant operators. Further, it is rolling out its unified payment solutions.
Notably, Lightspeed’s offerings enable omnichannel commerce, positioning it well to capitalize on the ongoing shift in selling models toward multi-channel commerce platforms. Further, Lightspeed stands to gain from its revamped go-to-market strategy, which is aimed at driving sustainable earnings growth.
The company is focusing on streamlining its operations and acquiring high gross transaction value (GTV) customers. These high GTV customers can adopt multiple modules, which boosts the company’s average revenue per user (ARPU), reduces churn rate, and drives profitability. In the second quarter of fiscal 2024, Lightspeed saw a 9% increase in customers with over $1 million in GTV, supporting its long-term growth. Additionally, unified payments are leading to the expansion of its high GTV locations and are contributing to an overall increase in ARPU.
Further, Lightspeed’s focus on acquisitions will accelerate its growth rate in the future. It’s worth noting that acquisitions play a pivotal role in Lightspeed’s strategy to expand its customer base, diversify its product offerings, and strengthen its position in the market.
While Lightspeed is poised to benefit from its strategic initiatives, the company has delivered positive adjusted earnings ahead of interest, taxes, depreciation, and amortization in the second quarter of 2024 for the first time since it went public. Moreover, it is on track to achieve profitability soon, supporting the uptrend in its share price.
Bottom line
While I’m bullish about Shopify’s long-term prospects, the recent rally in its share price keeps me sidelined in the near term. However, Lightspeed continues to grow rapidly and is poised to deliver profitable growth, which will drive its share price higher. Further, Lightspeed stock is trading incredibly cheap on the valuation front (near the all-time low), providing a solid entry point near the current levels.
