Lightspeed Commerce (TSX: LSPD) once aimed to be a millionaire-maker stock but fell short in its ambitious attempt. Before its setbacks, the retail software and payments platform provider seemed poised to create new millionaires in 2021. Investors hoping for a spectacular rebound might speculate on LSPD stock regaining lost ground once a skeptical market recognizes the growth stock’s potential for sustainable profits.
A millionaire-maker stock, in my view, is a high-growth investment that should be able to generate 1,000% and beyond in investment gains over a long-term holding period – preferably a decade. The highly promising Canadian tech stock came close to turning $100,000 into a million dollars for investors who bought shares at its Initial Public Offering (IPO) in 2019.
Lightspeed stock has seen a 21.9% gain in the past week and is up 31% in the past month. However, shares remain 86% below their peak over the past three years, even as the company’s restructuring efforts show progress toward operational profitability. Could an undervalued Lightspeed Commerce stock eventually make new millionaires one day?
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Lightspeed stock undervalued
Lightspeed stock has failed to recover from a short-seller attack despite sustained revenue growth and a steady path toward sustainable profitability. The company has reported impressive double-digit revenue growth rates over the past two years, and shares appear undervalued compared to industry metrics.
LSPD stock trades at 2.7 times its historical annual sales, while investors pay as much as 5.9 times sales per share for an average industry stock. Moreover, despite maintaining a cash-rich balance sheet, investors pay 1.1 times Lightspeed stock’s book value, whereas an average stock in the company’s industry trades at a price-to-book (P/B) value multiple of 6.9.
The one-stop commerce platform provider remains undervalued regardless of its 24% year-over-year revenue growth rate in the most recent fiscal year ended in March and a reported 27% year-over-year revenue growth to US$266.1 million in the quarter ended in June this year, where losses narrowed significantly.
Can Lightspeed stock recover to make new millionaires?
Lightspeed Commerce stock is running out of time to make a recovery that richly rewards early investors. The biggest risk to the stock is a potential acquisition.
The company’s successful restructuring efforts over the past 18 months are bearing fruit, and Lightspeed’s operating expenses have narrowed significantly, bringing profits closer. While recent progress hasn’t translated into tangible gains in LSPD stock price, the company is increasingly a potential target for strategic buyers seeking undervalued acquisitions.
A recent Reuters report suggesting that Lightspeed might be considering a potential sale confirms investors’ fears that a potential future gem could be snatched from their hands. The report could be the catalyst that drove LSPD stock up 21.9% in the past week. Bidders may be circling the company’s business, and I doubt any of them would be willing to pay a 1,000% premium on Lightspeed stock’s current market value.
Management hasn’t refuted the speculative news, and the company’s statement that it “periodically undertakes, and is currently conducting, a strategic review of its business and operations with a view to realizing its full potential” seems to confirm the sale rumour about a company that “may continue to engage in discussions relating to a range of potential strategic alternatives.”
Investor takeaway
Sadly, the public market journey for Lightspeed Commerce stock may end soon, before investors recover from short-seller-induced losses, even as the company has recently shown tangible progress toward being a profitable, positive free-cash flow generating business. That said, a sale deal may still not materialize, giving the stock more time to attempt an organic recovery as operations turn profitable.
