Stock Analysis & Ideas

Can Lightspeed Stock Recover from Short-Seller Allegations?

Among the stocks that has been on investors’ radar of late is Lightspeed POS Inc. (LSPD) (TSE:LSPD). This e-commerce and omnichannel play has seen tremendous interest over the past few years as a hyper-growth stock. Indeed, this company has posted impressive numbers of late.

However, a recent short report from Spruce Point Management has hurt the investment thesis for this stock. Investors now have to sift through the mud to get at what this growth stock’s valuation should be. Such a difficult task is never a fun undertaking.

That said, let’s dive into what the allegations against Lightspeed are, and determine whether there’s light at the end of the tunnel for investors right now.

I remain neutral on this stock. (See Lightspeed stock charts on TipRanks)

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Lightspeed Stock in the Crosshairs

This past week, Spruce Point Management released a rather daunting short report on Lightspeed. The company levied a strong Sell opinion on the stock, highlighting concerns around Lightspeed’s financial health.

Indeed, given how far and how fast Lightspeed stock has run, there comes a time when analysts begin to question the hysteria. It seems this short report has done just that.

Spruce Point alleges that Lightspeed hasn’t accurately reported how many customers it has, how much revenue it obtains from each company, and how the company accounts for its sky-high growth rate. Indeed, as a hyper-growth stock in the payments solutions space, this report has caused many investors to take a step back with Lightspeed. Accordingly, LSPD stock has dropped approximately 25% since this short report was released.

Among the concerns pointed out in this report is the likelihood of competitive pressures driving margins lower. Spruce Point suggests that in order for Lightspeed to continue growing at this rate, eventually the company will be forced to compete with the likes of Shopify (SHOP) and Amazon (AMZN). Such heavy competition may not bode well for this stock over the long-term.

Of course, time will tell how this ultimately plays out. However, investors seem to be less bullish on this stock than before. On the other hand, investors looking to potentially build a position in Lightspeed may have a more attractive entry point now.

Now, the question remains – will more downside be on the horizon? Is this a falling knife, or will Lightspeed stock rebound quickly?

Time will tell. However, one thing is for certain right now: many investors are sticking around to find out.

Can Lightspeed’s Growth Trajectory Continue?

Given the concerns highlighted in Spruce Point’s report, investors are now considering whether Lightspeed has the ability to live up to its previously-reported growth (accurate or not).

Investors bullish on this omnichannel, e-commerce and payments company like the secular catalysts underpinning this stock. Indeed, Lightspeed has found a niche growth market that has taken this stock much higher during the pandemic. At a time when many investors were re-assessing their portfolios, Lightspeed stock was among the top buys for many aggressive growth investors.

An investment in Lightspeed at the trough of the recession resulted in many investors holding a 10-bagger, until recently. Accordingly, those questioning Lightspeed’s growth potential at the onset of the pandemic were proven wrong. Thus, this has been a difficult stock to short for extended periods of time.

What are the Analysts Saying About LSPD Stock?

According to TipRanks’ analysts rating consensus, Lightspeed is a Moderate Buy. Out of 13 analyst ratings, there are 10 Buy recommendations, 2 Hold recommendations, and 1 Sell recommendation. 

This stock has an average Lightspeed price target of $121.56. Analyst price targets range from a high of $156.35 per share to a low of $88.20 per share. 

Bottom Line

Since its public market debut in 2019, acquisitions have been the major reason for the rapid growth of Lightspeed. These acquisitions have continued, making Lightspeed stock a hyper-growth option for investors, as of late.

However, the cold water poured on this stock from short-sellers must be taken into consideration by investors. While there’s lot to like about where Lightspeed is headed, right now, perhaps taking a seat on the sidelines is the best move.

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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