Retail commerce and payments software provider Lightspeed Commerce (TSX:LSPD) stock has lost 33% of its value so far this year. The troubled growth stock’s focus on profitability is going full throttle in 2024, and shares could be too cheap to ignore at current trading levels under $19 a share. A significantly undervalued Lightspeed stock could have compelling management to launch a stock-repurchase program that maximizes allowable regulatory limits this year.
Lightspeed stock investors aren’t that elated by revenue growth anymore; shares continued to plunge, even as the company posted double-digit revenue growth rates in February. A scathing short-seller report in September 2021 cast doubt on the company’s potential to produce profits for its shareholders.
Following a substantial fall in Lightspeed stock price after an earnings report in February, Lightspeed reinstated its founder Dax Dasilva back to the chief executive officer (CEO) position — a week later. The reinstated CEO’s task is laid out for him — he has to drive the company to sustained profitability as soon as possible, and his team has wasted no time in implementing new strategies to lift Lightspeed stock.
Lightspeed stock turning to sustained profitability?
Lightspeed’s former CEO, JP Chauvet, initiated a significant turnaround by unifying the company’s previous acquisitions into streamlined product offerings, refocusing on larger, well-established merchants with low customer churn rates that improved revenue quality, and promoting the cross-selling of the company’s products — especially payments solutions, to existing subscribers.
The company is on a new trajectory today, and its operating losses are shrinking as revenue continues to rise.
LSPD Revenue (TTM) data by YCharts
Operations aren’t close to breaking even yet, but the newly established trend is encouraging, especially as it is supported by recently announced restructuring exercises in April 2024
Lightspeed could further reduce its operating losses this year after announcing plans to lay off 280 employees, or 10% of its headcount related to operating expenditures on April 3. The company expects to recognize the majority of the restructuring expenses, including other cost reduction initiatives in facilities and operations, during the first quarter of the Fiscal Year 2025, which began on April 1, 2024. The plan will be substantially complete during the same quarter.
The company expects the restructuring to open up capital for investments in other areas, and I can speculate that artificial intelligence (AI) could be one investment.
Could repurchases of Lightspeed stock help lift LSPD share price?
Lightspeed plans to repurchase 10% of its common stock on the open market, for about US$140 million (CA$192 million) this year. Management emphasized that it’s repurchasing the “maximum allowed” shares per year, perhaps to imply that it could have done more repurchases if regulatory forces permitted.
Lightspeed’s management is highly convinced that the stock is significantly undervalued at current trading levels.
The company has a cash-rich balance sheet. Cash and cash equivalents of US$749.4 million (CA$1.03 billion) comprised 28.8% of Lightspeed’s total assets by December 31, 2023. Most noteworthy, Lightspeed’s total assets include US$1.35 billion of goodwill, and goodwill represents overpayments for assets acquired during a prior acquisition spree. Adjusting for goodwill, cash comprised a staggering 59.8% of the company’s identifiable assets — and substantially more than a third of Lightspeed’s market value of $2.8 billion today.
Investors seem to have undervalued the company’s treasure trove. Management’s decision to use its cash pile to buy the discounted stock back could significantly reduce the number of shares outstanding and improve the company’s per-share valuation metrics, including sales per share, earnings per share, and cash flow per share.
Time to buy?
Lightspeed is making strides to turn sustainably profitable while sustaining double-digit revenue growth rates. Bay Street analysts expect the company to organically grow its revenue at a compound annual growth rate (CAGR) of 23.5% over the next two years. Meanwhile, the forward enterprise value-to-revenue multiple of 1.3 on LSPD stock is far below a peer average of 6.6. Lightspeed stock appears too cheap to ignore.
Growth-oriented investors with a long-term perspective may buy Lightspeed stock at its depressed values today and expect positive capital gains over the next five years as the technology stock finds its feet.
