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Stock Analysis & Ideas

Lightspeed Stock: Is the Correction an Opportunity?

Story Highlights

Lightspeed stock has lost substantial value amid the recent selling. However, the strength of its underlying business keeps the momentum going.

Shares of tech companies that thrived amid the COVID-19 pandemic have lost substantial value in 2022. 

The market valuation of these companies was wiped out by billions due to normalization in the growth rate, macro headwinds, and concerns over consumer spending. Take Lightspeed Commerce (TSE: LSPD) (NYSE: LSPD), for instance. Shares of this omnichannel commerce platform provider have fallen nearly 79% from its 52-week high. 

This steep decline in its price can be attributed to the worsening of the macro headwinds and short-seller report. As Lightspeed stock has lost substantial value, could this be an investment opportunity?

What’s Ahead?

Undeniably, Lightspeed’s growth has moderated from the prior-year period. However, this shouldn’t surprise much, as the growth was expected to normalize after acceleration amid the pandemic. However, what’s worth highlighting is the continued strength in its key performance metrics, including organic growth, GTV (gross transaction volume), ARPU (average revenue per user), and growing payments penetration. 

Lightspeed achieved organic growth of 48% in subscription and transaction-based revenues during the last reported quarter. Further, organic GTV increased by 39%. Its ARPU registered a growth of 35%, while payments penetration increased both sequentially and year-over-year. 

Lightspeed remains confident of achieving 35-40% organic growth in subscription and transaction-based revenues in FY23. Notably, Lightspeed is up against tough year-over-year comparisons in the first quarter of FY23. For context, Lightspeed achieved 220% growth in its top line in the prior-year quarter. Despite the tough base, LSPD expects to grow its Q1 revenues by 43-48%, which is encouraging. 

In response to its guidance, BTIG analyst Mark Palmer stated that the management’s outlook “reflects their expectation that the company’s cloud point-of-sale and e-commerce offerings will continue to be in high demand despite the macro headwinds.”

Palmer is bullish on LSPD stock. Highlighting the company’s ability to expand its omnichannel platform “both organically” and through acquisitions despite a challenging operating environment, the analyst expects it to deliver 35%+ revenue growth in the next two years. 

Along with Palmer, most analysts are bullish about LSPD stock. Its Strong Buy consensus rating is based on 13 Buy, one Hold, and one Sell recommendations. Meanwhile, the average Lightspeed price target of C$49.13 implies 43.2% upside potential to current levels. 

Bottom Line

The macro and geopolitical headwinds will likely pose challenges for Lightspeed in the short term. However, the strength in its core business (organic growth and an uptrend in ARPU), increase in payments penetration, easing restrictions, and ability to drive its customer base provide a solid foundation for growth. 

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