Where Did Lightspeed Stock Go Wrong?

Lightspeed stock used to be the darling of the point-of-sale world. But with shares falling and not making a comeback, what now?

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published September 27, 2024 3:45 pm EDT

Lightspeed Commerce (TSX: LSPD) has had quite the rollercoaster of a journey. Once a darling of the tech world, especially after its initial public offering (IPO) Lightspeed was seen as the Shopify alternative due to its focus on point-of-sale systems for businesses like restaurants and retail. However, while Shopify soared, Lightspeed’s path became rocky. A combination of rapid expansion, fierce competition, and market volatility put the company in a challenging spot. Though it’s still in the game, its stock performance shows it’s had trouble delivering on early promises.

A worker uses a double monitor computer screen in an office. — Source: Getty Images

Profitability problems

One of the primary concerns has been Lightspeed’s profitability. As of the most recent data, the company is still operating at a loss with a -15.55% profit margin and a -10.41% operating margin. These aren’t the types of numbers that inspire confidence, particularly for long-term investors who value earnings stability. While revenue growth is strong at 27.30% year over year, the bottom line hasn’t caught up, thereby leaving many investors wondering when or if the company will turn a sustainable profit.

It’s worth noting that Lightspeed’s stock has struggled over the past year as well. With a 52-week low of $16.04 and a high of $28.73, the stock has dropped by 5.66% in value. This decline has shaken some investors, especially given the high expectations set during its IPO. It’s clear that market sentiment has soured somewhat, particularly as Lightspeed has yet to prove it can be a consistently profitable enterprise.

What happened?

So, where did Lightspeed go wrong? A big part of the issue has been its hefty spending on growth initiatives, which have hurt profitability. The company has made several acquisitions to expand its offerings, but this has also weighed down its financials. Add in the competition from other giants in the tech and retail space, and Lightspeed hasn’t had an easy time gaining traction, especially with pressure from investors for a clearer path to profitability.

However, it’s not all doom and gloom for Lightspeed. The company is sitting on a hefty cash pile of $673.95 million and has minimal debt. This solid cash position gives it some breathing room to navigate these choppy waters. And its current ratio of 6.19 suggests that it’s in a strong position to cover its short-term obligations. This financial flexibility could be crucial in turning the ship around, as it allows Lightspeed to continue investing in growth while weathering the storm. And with its acquisitions now proving worth the price, investors should be perking up.

Coming to life

In recent weeks, Lightspeed’s stock has shown some signs of life. While that’s a promising sign, it’s not enough to indicate a full-fledged comeback. Investors are still waiting for the company to demonstrate sustainable profitability. And with a forward price-to-earnings (P/E) ratio of 32.26, the stock is priced for growth. The big question is whether Lightspeed can deliver on that growth over the long term.

All together, Lightspeed Commerce is at a crossroads. It has the potential to make a comeback, but it’s going to need to tighten up its financials and prove that its aggressive expansion strategy can pay off. With solid revenue growth and a healthy cash reserve, the company still has a fighting chance. But until we see consistent profitability, it’s hard to say whether the stock is truly on the road to recovery.