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Stock Analysis & Ideas

Lightspeed Commerce Stock: Facing Headwinds, but Its Time Will Come

Story Highlights

This isn’t exactly the time for technology stocks, and many investors don’t want to hear from them as the turmoil continues to fuel risk aversion. Investors don’t think twice about unloading them. In some cases, however, perseverance is allowed for companies like Lightspeed Commerce.

Lightspeed Commerce (LSPD) operates a platform where the availability of Software as a Service (SaaS) makes it easier for small and medium-sized businesses, retailers, restaurants, and golf course operators in North America and internationally to conduct their commercial activities.

Lightspeed’s technology aims to foster a positive experience for its clients’ customers by assisting its clients in performing a wide range of activities such as front office operations, customer retention activities, order management, payment acceptance, etc.

The company also offers customized financial solutions and sells point-of-sale (POS) peripheral hardware.

The unprecedented market uncertainty will no doubt continue to weigh on Lightspeed, which is down more than 40% so far this year.

Lightspeed is a good company because it has a solid financial position that supports interesting growth prospects. However, I would recommend no more than a Hold rating on this stock until the current bear market is over.

Reasons to Expect Further Declines

A combination of issues created headwinds for Lightspeed and the broader technology stock sector.

These headwinds are being caused by the (economic) aftermath of the Russian invasion of Ukraine, the U.S. Federal Reserve’s risky monetary policy to curb rapid inflation, and geopolitical tensions between the G7 and Russia.

The latter factor is likely to be of most concern to investors as they consider an international dimension to their investments to take advantage of the globalization of the business.

With aggressor Russia and the G7 still in a state of non-dialogue, as each seeks to expand its sphere of influence, the resulting escalation will continue to slow investor sympathy for equities for some time.

Encouraging Growth Trends

Financial Results for the Fiscal 2022 fourth quarter, which ended March 31, 2022, provided shareholders with an opportunity to appreciate the gradual return of people to in-person shopping and dining out.

Their patience in postponing these activities during the COVID-19 pandemic has been reflected in an impressive increase in Lightspeed’s sales following the lifting of lockdown and other restrictions to prevent the spread of the virus.

Compared to the same quarter of the prior Fiscal year, revenue for the final quarter of Fiscal 2022 rose nearly 78% to $146.56 million, beating analysts’ expectations by $5.4 million.

The improvement was not enough to prevent another loss, as continued investment in innovation leads to higher operating costs. These investments are focused on providing POS, payment, and e-commerce solutions to small and medium-sized businesses in the United States.

So, Lightspeed Commerce suffered an adjusted net loss of $0.15, but it beat the analysts’ average estimate by $0.05.

The Outlook

While high inflation may affect households’ willingness to consume, there are other items besides basic goods and services that people are unlikely to reduce in the coming months.

Shopping in brick-and-mortar stores and dining out are certainly among the things people will be doing regardless of inflation, as months of lockdowns and restrictions have fueled their desire to spend more time away from home.

Lightspeed Commerce is well-positioned to benefit from tailwinds resulting from society’s renewed passion for shopping, socializing, and participating in outdoor activities.

The balance sheet provides resources to sharpen Lightspeed Commerce’s growth strategy, as it had a total of $953.6 million in cash as of March 30, 2022, versus just $29.8 million in total debt.

Lightspeed’s Revenue Guidance

Looking ahead to Fiscal 2023, the company is forecasting revenue of $740 million to $760 million, while the Wall Street consensus is about $753 million.

Analysts also estimate that Lightspeed’s earnings will improve by 15.5% to a net loss of $0.31 per share.

Wall Street’s Take

In the past three months, 15 Wall Street analysts have issued a 12-month price target for LSPD. The stock has a Strong Buy consensus rating based on 13 Buys, one Hold, and one Sell rating.

The average Lightspeed Commerce price target is $38.66, implying 73.4% upside potential.

Valuation

Shares are changing hands at $22.30 as of the writing of this article for a market cap of $3.3 billion, a price/earnings ratio of -11.5, and a price/sales ratio of 6.1.

The stock is currently trading about 2.2 times below the middle point ($72.53) of the 52-week range of $15.03 to $130.02.

Also, its stock price is near its 50-day moving average price of $22.63 and trading well below the 200-day moving average price of $45.90.

So, the stock doesn’t look expensive, and, given its growth prospects, which are very promising despite elevated inflation and other causes of problems affecting consumption and investment, the stock would undoubtedly get a Buy rating from me.

However, market turmoil due to geopolitical tensions stemming from the war in Ukraine and its aftermath will likely continue to put downward pressure on shares of LSPD and other growth tech stocks.

The stock has a 14-day Relative Strength Index (RSI) of 46.98, indicating that the stock price is not oversold yet despite its significant decline. The indicator ranges between 30 and 70. A reading of 30 or close to it means the stock is oversold or almost oversold. However, if the reading is close to 70 or just 70, the stock has approached the overbought level or is practically overbought.

Therefore, the 14-day RSI reading of 46.98 means that Lightspeed still has room to move lower in the coming weeks.

Investors are waiting for this bearish sentiment to create more compelling entry points and make the cost of investing more affordable than if done at current levels. That should be more than enough for shareholders not to feel too depressed about the stock price downtrend.

Conclusion

Lightspeed Commerce is a good stock with promising growth prospects, but shares are likely to fall more sharply given ongoing strong market headwinds.

Waiting for lower prices before buying this stock could greatly increase the success of the investment as shares may eventually uptrend once again once the dust settles.

Disclosure

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