Lightspeed POS is overbought, this fund manager says

After a successful IPO and numerous comparisons to Canadian tech superstar Shopify, it’s full steam ahead for Lightspeed POS (Lightspeed POS Stock Quote, Chart TSX:LSPD). But for those of us who didn’t jump on board last month, you might want to wait for a better entry point, according to James Hodgins of Curvature Hedge Strategies, who says that the stock is ahead of itself.

“It’s not cheap, so it’s not for the faint of heart,” says Hodgins, president and chief investment officer at Curvature, to BNN Bloomberg on Monday. “We did buy into a little bit of the IPO but we haven’t purchased any since then. Obviously, the stock has done quite well.”

“Usually when these high-growth companies become public, they have a couple of good quarters saved up and I would expect that to be the case with Lightspeed, to show significant growth. We like the company, we just think that the valuation is a little rich here,” he says.

Montreal-based Lightspeed bolted out of the gate with a $240-million initial public offering on March 8, the largest by a Canadian tech company since 2010’s Smart Technologies IPO. Sitting at a market cap of $1.98 billion and starting out at $16.00, Lightspeed has since jumped to the $24.00 range where it has been trading for the past two weeks.

The point-of-sale software company currently operates in over 100 countries, has 700 employees and about 47,000 customers, with US$72 million in revenue last year.

Earlier this month, National Bank Financial analyst Richard Tse initiated coverage of LSPD with an “Outperform” rating and $25.00 target price, saying that the company has so far captured only 0.25 per cent of its addressable market worldwide and Tse expects Lightspeed and its end-to-end platform to double its average revenue per user over the next two to three years.

“Lightspeed’s offering plays into a POS market that’s ripe for disruption. With close to 50 per cent of POS software over five years old and nearly 20 per cent over 12 years old, we believe those numbers are even higher with SMBs,” wrote Tse.

“In our opinion, we see considerable upside – particularly for those investors with a longer-term view,” he says.