Earlier this month, the Federal Reserve kept its interest rates unchanged. It was the third straight time the US Central Bank held its benchmark interest rates intact, thus indicating that the rate hike cycle must be over. Besides, the US Consumer Price Index has declined over the last two months, prompting investors to hope for earlier-than-expected rate cuts.
Amid the improvement in investor sentiments, growth stocks have witnessed solid buying since the beginning of November, with Nuvei (TSX:NVEI) and Lightspeed Commerce (TSX:LSPD) rising 81% and 52%, respectively. Amid renewed interest in growth stocks, let’s assess which of these two companies would be a better buy right now.
Nuvei
Last month, Nuvei reported an excellent third-quarter performance, with its revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) growing by 55% and 36%, respectively. It also processed around $48.2 billion of transactions during the quarter, representing a 72% increase. Meanwhile, I expect the uptrend in the company’s financials to continue amid an expanding addressable market.
With the growing popularity of digital payments, Markets and Markets projects that the digital payments market will grow at an annualized rate of 11.7% for the next five years. Meanwhile, Nuvei is developing innovative products, adding new APM (alternative payment methods) to increase local market access and venturing into new markets to expand its market share. The payment-processing company has recently opened a new office in Shanghai, China, which could help expand its footprint in the Asia-Pacific region. So, its growth prospects look healthy.
Meanwhile, after reporting its third-quarter performance, the company’s management had raised its 2023 guidance. The midpoint of its new revenue and adjusted EBITDA guidance represent a year-over-year growth of 40% and 22.7%, respectively. Further, the management is confident of growing its topline at an annualized rate of 15–20% in the medium term while increasing its adjusted EBITDA margin to over 50% in the long term.
Besides, Nuvei’s valuation also looks attractive, with its NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples at 2.7 and 13.0, respectively.
Lightspeed Commerce
Last month, Lightspeed Commerce also reported its second-quarter earnings for fiscal 2024, which ended on September 30. Its revenue grew 25%, while its net losses declined from $79.9 million to $42.5 million. Besides, the company also posted its first-ever positive adjusted EBITDA.
Meanwhile, the company continues to launch new products and artificial intelligence-powered tools to strengthen its customer base. With the company expanding its payment platform to new markets, I expect its ARPU (average revenue per user) to continue rising in the coming quarters. Besides, the company’s customer base is shifting to higher GTV (gross transaction value) customer locations, which could also contribute towards its financial growth.
Amid these growth prospects, Lightspeed’s management expects its fiscal 2024 revenue to come in between $890 million and $905 million, with the midpoint representing a 21.5% increase from the previous year. Management also expects its adjusted EBITDA to be in positive territory. Besides, its valuation also looks reasonable, with an NTM price-to-earnings multiple of 3 and a price-to-book ratio of 1.2.
Investors takeaway
Although both companies offer higher growth prospects, I am more bullish on Nuvei due to the greater visibility of its financial growth and cheaper valuation.
