Valued at a market cap of US$2.24 billion, Lightspeed Commerce (TSX:LSPD) went public more than five years back. Between its initial public offering in March 2019 and September 2021, LSPD stock returned a remarkable 740%. However, the TSX tech stock currently trades 88% below all-time highs and trails the broader markets by a significant margin. Let’s see if LSPD stock is a buy, sell, or hold at current prices.
Lightspeed’s revenue growth is decelerating
Lightspeed’s robust platform helps merchants simplify, scale, and provide “exceptional customer experiences.” Its cloud commerce solution unifies online and physical operations, multichannel sales, new location expansions, global payments, financial solutions, and much more.
Lightspeed grew its sales from US$221 million in fiscal 2021 to US$909 million in fiscal 2024 (ended in March). In the last three years, the company grew its sales by more than 60% annually primarily on the back of acquisitions. However, in fiscal 2024, its top-line growth decelerated to just 24%.
Lightspeed Commerce reported revenue of US$230.2 million in the fourth quarter (Q4) of fiscal 2024, up 25% year over year. While transaction-based revenue rose 40% to US$139 million, subscription revenue rose 7% to US$81.3 million.
Its sales growth allowed Lightspeed to report an adjusted profit of US$8.5 million or US$0.06 per share in Q4, compared to a loss of US$400,000 in the year-ago period.
Similar to other growth stocks, Lightspeed aims to reduce its costs to navigate a challenging macro environment and boost the bottom line. It recently announced cost-reduction initiatives to improve its financial performance which should also help the company to allocate capital towards key product developments. Lightspeed will reduce its workforce by 10%, reducing its operating expenses in the next 12 months.
During its Q4 earnings call, Lightspeed chief executive officer Dax Dasilva stated, “After successfully integrating our many acquisitions into our two flagship products and expanding adoption of our payments offering, Lightspeed is now entering a new phase, one focused on profitable growth to capture the opportunity in front of us.”
Is LSPD stock undervalued?
Lightspeed forecasts revenue to grow by at least 20% year over year in fiscal 2025, which might allow it to report an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of US$40 million.
Lightspeed expects to expand EBITDA profitability in the next 12 months while growing its high GTV (gross transaction value) customer base and subscription sales. A widening base of subscription revenue should help Lightspeed enjoy steady cash flows across market cycles.
The fintech company aims to balance sales growth and profitability as it seeks to scale its business beyond US$1 billion in revenue.
Analysts tracking LSPD stock expect sales to rise from US$909 million in fiscal 2024 to US$1.1 billion in fiscal 2025 and US$1.34 billion in 2026. Comparatively, adjusted earnings per share is forecast to expand from US$0.16 in 2024 to US$0.29 in 2025 and US$0.47 in 2026.
Priced at 50 times forward earnings, LSPD stock might seem expensive. But its earnings are forecast to almost triple in the next two years, allowing it to command a premium valuation. Analysts covering LSPD stock remain bullish and expect it to gain over 22% in the next 12 months.
