Be patient with Lightspeed POS, this investor says

But while the payment processing and point-of-sale company seems to check all the right boxes, investors may want to tread carefully, at least until we see a couple of quarters of earnings, says Ryan Modesto, CEO of 5i Research.

“We think Lightspeed is a really interesting-looking name,” says Modesto, to BNN Bloomberg on Friday. “[But] it’s the classic thing we see: a good Canadian IPO and nobody seems to talk about it. These kinds of IPOs don’t happen very often.”

“You have some that do the secondary market, names like Canada Goose — but they were owned by a private equity company before and then brought public. This is a great Canadian story that we should be raising up, a great success story,” he says.

Now with a market cap of $1.7 billion, the tech unicorn sold 15 million shares for its IPO on March 7, increasing its share price to $16 after initially pegging it at between $13 and $15 per share. The stock rose to almost $24 by March 13 before landing in the $20-$21 range over last week’s trading. (All figures in Canadian dollars unless otherwise noted.)

Modesto says patience could be virtue in this case.

“Canadian IPOs aren’t great, unfortunately. You might get a bit of a pop at first but oftentimes they come out with one or two earnings reports and things don’t turn out that well for them, for whatever reason that is. So, our general stance on Canadian IPOs is to just give it time. The company may be fine but if it’s going to do well, you’re going to have plenty of time to get involved,” Modesto says.

“Good growth and recurring revenues. [Payment processing] is a hot space right now globally, so there’s a lot to like here. We’d like to see one or two quarters before we get too excited about the name, but it’s definitely a name to keep on the watch list,” he says.

Montreal-based Lightspeed operates in more than 100 countries with offices in Canada, the US, Europe and Australia. The company’s 2018 financials featured revenue of US$72 million and gross profit of US$50 million, according to regulatory filings.