Is Lightspeed Commerce Stock a Buy Now?

Despite the near-term weakness, I am bullish on Lightspeed due to its solid fundamentals, healthy growth prospects, and attractive valuation.

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Lightspeed Commerce (TSX:LSPD) is a technology company that unifies online and physical business operations. It also offers global payments and financial solutions while aiding in expansion and connecting with supplier networks. The company has been under pressure this year, losing over 33% of its stock value year to date. Although its third-quarter performance was healthier, the management’s cautious outlook has weighed on investors’ sentiments. So, let’s assess whether Lightspeed is a buy after the steep correction by looking at its recent performance and growth prospects.

Lightspeed’s third-quarter performance

In the third quarter of fiscal 2024, Lightspeed Commerce posted revenue of $239.7 million, representing a 27% increase from the previous year’s quarter. It exceeded the company’s guidance of $232 to $237 million. The strong performance across its three segments drove its topline. Launching new products and expanding its products across new geographical markets drove its customer base and ARPU (average revenue per user). Its ARPU increased 28% to $447.

Meanwhile, the Montreal-based tech company’s customers processed GTV (gross transaction value) of around $23.1 billion, representing a 3% increase from the previous year. Its gross payment volumes (GPV) increased by 69% to $6.6 billion. Besides, around 29% of the company’s GTV was completed through its payment solutions, which is encouraging.

The payment processor’s gross margins stood flat at 42%. The gross margin of the subscription segment increased from 73% to 76%, while the gross margin of the transaction-based segment declined from 33% to 30%. Boosted by the topline growth, the company generated an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $3.6 million. It was higher than management guidance of $2 million and an improvement from a loss of $5.4 million in the previous year’s quarter.

After looking at its third-quarter performance, let’s look at its outlook.

Lightspeed’s outlook

After reporting its third-quarter performance, Lightspeed raised the lower end of its fiscal 2024 revenue guidance by $5 million. Now, the management expects its 2024 revenue to be in the range of $895 million to $905 million. However, the company is cautious about its near-term outlook amid the challenging macro environment and uncertainty over the pace of the adoption of unified payments in international markets.

Despite the near-term weakness, the POS and payment platform’s long-term outlook looks healthy. The growth in adopting the omnichannel selling model is expanding the addressable market for Lightspeed. The company is also expanding its product offerings and geographical footprint. Besides, the shift in customer base towards higher GTV locations could also support its growth.

Further, the launch of its Unified Payments initiative has resonated with its customers, with increased adoption and a lower churn rate. The company could also benefit from the increasing portion of its GTV being processed through its payment solutions. Besides, the improving profitability, with the management projecting a breakeven adjusted EBITDA for this fiscal year, is also encouraging.

Amid the recent sell-off, LSPD stock trades at an attractive valuation, with its NTM (next 12 months) price-to-sales at 2 and price-to-book multiple of 0.9.

Investors’ takeaway

Several analysts are predicting a global slowdown due to the impact of monetary tightening initiatives. So, growth stocks, including Lightspeed, could be under pressure in the near term. However, the company offers an excellent buying opportunity for long-term investors, given its solid fundaments, healthy growth prospects, and attractive valuation.

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.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends Lightspeed Commerce. The Motley Fool has a disclosure policy.

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