This Growth Stock Is Down 26%: Buy, Sell, or Hold?

While many growth stocks took to the sky after the December 2023 earnings, this one growth stock fell 26%. Should you buy the dip?

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The 2023 earnings season saw a difference in two tech stocks that grew parallelly since the pandemic. Lightspeed Commerce (TSX:LSPD) stock fell 26% in a week after it reported the fiscal third-quarter earnings, losing its Santa Claus rally from November 2023 to January 2024.

Meanwhile, Shopify (TSX:SHOP) stock didn’t flinch after the earnings. While both stocks rallied during the holiday season, their directions changed post-earnings. Is it that Shopify stock is likely to fall? Or investors are just overreacting to Lightspeed’s earnings. Let’s find out. 

Why did this growth stock fall 26%? 

Lightspeed Commerce is an omnichannel platform that helps retailers and restaurants manage operations in both online and physical stores. The platform connects retailers to suppliers and buyers, makes payments, takes orders, and manages inventory. The company accelerated its growth in 2021 through several all-share or cash-share acquisitions.

After growing its revenue by 147% to $548 million in 2021, the company put a pause on its acquisition spree. That was the time when the 2022 tech bubble burst. Moreover, short-seller Spruce Point Capital targeted Lightspeed, and the stock lost more than 80% of its value in 2022. Over the last two years, the company has been working on integrating all those acquisitions and generating organic growth. 

That slowed its revenue growth to around 20-30%, lower than the 2019 level of 36%. It expects its revenue for fiscal 2024 (ending March 2024) to grow 23%. While revenue grew, the 2024 losses widened from the 2019 losses. In this high interest rate environment, investors are more focused on profitability rather than future growth. 

Hence, Lightspeed’s stock continues to hover around its 2019 levels even though its revenue has surged to an estimated $895 million from $57 million in fiscal 2019. 

What to expect from this growth stock

Lightspeed has recently announced a management reshuffle. One of the biggest management changes is interim chief executive officer (CEO) JP Chauvet stepping down and founder Dax Dasilva returning as interim CEO. Chauvet, during his tenure, focused on transactional revenue and expanding the share of Lightspeed Payments in its gross transaction volume. He succeeded in doubling the average revenue per user (ARPU) to $447 from $215 in fiscal 2021. Dasilva aims to put profitability as a top priority by unlocking operational efficiencies and focusing on its high-margin subscription revenue. 

While Lightspeed stock fell, Shopify stock maintained its Santa Claus rally as the company turned free cash flow positive. Lightspeed gave a glimpse of positive EBITDA (earnings before interest, taxes, depreciation, and amortization) in the December quarter. With management reshuffle and profitability focus, there is a good chance of the stock seeing a stronger rally in 2024 than in 2023. Lightspeed stock is trading at 2.58 times its sales per share compared to Shopify’s 15 times. 

However, both ecommerce-related stocks could see a pullback between March and June if recession fears materialize. A recession slows transaction volumes as consumer demand falls. Companies like Shopify and Lightspeed thrive on higher transaction volumes. Hence, they tend to do well in a strong economy. 

Should you buy, hold, or sell Lightspeed stock? 

Lightspeed stock is trading closer to its 52-week low. Given the steadily growing fundamentals, the stock could be a buy-and-hold for the next two to three years. If you purchased the stock at its 2021 high of over $150, you could buy more stocks now and reduce the average cost per share. It could help you recover your loss during the 2024 holiday season. 

All in all, it is a growth stock you could consider buying the dip. 

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.

The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Lightspeed Commerce. The Motley Fool has a disclosure policy. Fool contributor Puja Tayal has no position in any of the stocks mentioned. 

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