I’m a big fan of stocks, but there are some I wouldn’t touch with a 10-foot pole. Whether due to being overpriced, or unprofitable, or dishonest, these companies aren’t worth the trouble. Studies show that the majority of stock market gains over the last two decades have been driven by a small minority of stocks. So while the long-term trend in stocks is one of gains, there are many stocks that underperform. In this article, I will explore one stock that I personally wouldn’t touch with a 10-foot pole.
Lightspeed
Lightspeed Commerce Inc (TSX:LSPD) is a TSX stock that has taken quite a beating over the last few years. Peaking in September of 2021, it has fallen 88% from its all-time high.
What went wrong here? Several things. First off, tech stocks like Lightspeed sold off as a group in 2022, due to perceptions that they were overpriced. The fact that interest rates rose that year didn’t help matters either. Second, the company suffered allegations of accounting irregularities. Third and finally, Lightspeed remains unprofitable despite having been in business for more than a decade. All of these factors contributed to dimming sentiment toward Lightspeed stock over the last few years.
Recent earnings
Although Lightspeed’s most recent earnings release technically beat expectations, it featured numbers that were alarming in absolute terms. In the fourth quarter, LSPD delivered:
- $240 million in revenue, up 27%.
- $81 million in subscription revenue, up 10%.
- A $-40 million net loss, improved from $-815 million.
- $750 million in cash and equivalents.
Some of these numbers – especially the improved net loss – were encouraging. However, Lightspeed’s release on the whole showed decelerating revenue growth. In 2020 and 2021, the company grew its revenue at more than 100%. The current 27% growth rate, while good in absolute terms, is way down from Lightspeed’s post-IPO peak. If the deceleration continues, then LSPD stock will probably fall further.
Allegations of shady accounting
Another problem that Lightspeed faced recently was being the subject of a scathing short report that accused the company of accounting irregularities. In September of 2021, Spruce Point Capital released a short report on the company, accusing it of such misdeeds as:
- Juicing revenue growth by making overly expensive acquisitions.
- Aggressively recognizing revenue.
- Using certain accounting metrics and then ceasing to use them when they stopped flattering the company.
Although Spruce Point did not find a “smoking gun” establishing that Lightspeed had committed accounting fraud, its report made a big enough impact that Lightspeed crashed tumbling 10% the day it came out. There was no other news about Lightspeed on the day that report came out, so most likely, it was directly responsible for the crash.
A competitive industry
A final factor that Lightspeed has going against it is the fact that it’s in a highly competitive industry. Point of sales systems are a dime a dozen, and they’re not the hardest applications to make. New startups trying to make POS systems are being funded every week. This has led to a competitive industry that’s hard to make money in. Lightspeed has tried to differentiate itself by getting into Shopify-like ecommerce platforms, but it has paid a steep price to do so. It’s not clear that the spending will ever pay off.
Foolish takeaway
Taking everything into account, Lightspeed is not the most intriguing buy today. Although it is cheaper now than it was in the past, the company keeps losing money. If it continues to do so, it may burn through all its cash.
