Shares of commerce-enabling company Lightspeed (TSX: LSPD) are down over 34% year to date, taking a hit from management’s cautious outlook regarding its short-term future. Notably, during the third quarter (Q3) conference call, Lightspeed’s leadership said the company remains cautious on near-term prospects due to an uncertain macroeconomic environment and the adoption rate of its unified payments in the international markets.
While the company’s cautious outlook is a sign of worry, Lightspeed’s fundamentals remain strong, reflected through its durable revenue growth, growing higher gross transaction volume (GTV) customer locations, improving average revenue per user (ARPU), and the company’s ability to acquire and integrate companies to bolster its growth rate.
On the product front, the company expanded Lightspeed Capital into France, the Netherlands, and Belgium. Moreover, it rolled out Instant Payouts in the U.S. and introduced Lightspeed Tableside, a portable and flexible POS and payment processing device.
All these positives suggest that the selloff in this tech stock is overdone. Meanwhile, the significant drop in its price has driven its valuation lower, making it a buy near the current levels. Let’s delve deeper.
Lightspeed’s fundamentals remain strong
Lightspeed continues to deliver strong revenue growth led by organic sales and benefits from acquisitions. In the third quarter, Lightspeed’s top line increased by 27% year over year and came ahead of management’s guidance range.
The company achieved positive adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) for the second consecutive quarter and expects to sustain the momentum in the coming years. Thanks to its higher revenue and adjusted EBITDA, its ARPU hit record highs and registered a year-over-year growth of 28%. What stands out is that the company’s overall cash burn continues to decline, which will likely drive its earnings.
Notably, Lightspeed continues to shift towards high GTV customers, which substantially lowers the risk of churn and drives higher lifetime value for Lightspeed compared to lower GTV/year customers, thus supporting its ARPU and bottom line. Customer Locations with GTV exceeding $500,000/year increased 7% year over year in Q3. Moreover, the number of Customer Locations with GTV exceeding $1 million/year also marked a 7% growth.
Acquisitions and valuation
Investors should note that acquisitions are also a key part of Lightspeed’s strategy to accelerate its product development, enhance its market share, and drive its Customer Locations. Notably, the company acquired and integrated nine companies since it was listed on the TSX. These acquisitions significantly boosted its customer base and accelerated its growth rate.
While Lightspeed could continue to benefit from its focus on acquiring and integrating companies, its stock is trading incredibly cheap. For instance, Lightspeed stock is trading at a forward enterprise value/sales multiple of 1.3, which is at a multi-year low and significantly lower than its historical average.
Bottom line
Overall, Lightspeed’s focus on expanding its product offerings bodes well for growth and positions it well to capitalize on the ongoing shift in selling models towards omnichannel platforms. Further, Lightspeed’s solid organic sales, selective acquisitions, focus on driving profitable growth, and incredibly cheap valuation support my optimistic outlook and make it an attractive investment near the current market price.
