Lightspeed is a pricey stock but a great company, this investor says

Is Lightspeed stock too pricey?

Lightspeed POS (Lightspeed POS Stock Quote,Chart TSX:LSPD) has hit the ground running with a successful IPO earlier this year and there’s likely more where that came from, says Rob Lauzon of Middlefield Capital, who thinks the company has a lot of runway ahead of it.

“We don’t own it yet [but] we see massive growth in payments,” said Lauzon, managing director and deputy chief investment officer for Middlefield, to BNN Bloomberg on Friday.

“This is a Montreal-based company that’s making life for small businesses a lot easier through point-of-sale, through inventory management and basically front to back end management of small to medium-sized businesses. Huge growth rates,” he says.

Lightspeed impressed with its initial public offering in March, a $240-million debut, the largest by a Canadian tech company in almost a decade, with the stock performing equally well in the weeks since.

LSPD rose from $20.00 per share to a close of $31.40 this past Friday, while in midday trading on Monday, the stock is up another seven per cent.

Investors responded well to the company’s first earnings report, its fourth quarter fiscal 2019, which came out on May 30 and beat analysts’ estimates, generating revenue of US$21.3 million in comparison to the expected US$20.4 million and compiling an adjusted operating loss of US$4.1 million compared to the expected US$4.9 million.

Also notable was management’s guidance which called for fiscal 2020, which is calling for revenue between US$107 million and US$110 million as opposed to analysts’ expectation of US$103.2 million.

“So far the market has really liked it since its IPO. Where it’s trading, it looks expensive but their growth rates support it,” says Lauzon.

Lightspeed is now getting mentioned in the same context as Canadian tech superhero Shopify, which although now 20 times Lightspeed’s size in terms of market cap actually started out smaller than Lightspeed, raising only $131 million in its IPO in 2015. Shopify has been a market dynamo since its debut, growing over 1000 per cent in a little over four years.

But Lauzon says the Canadian tech market’s small size can play against it, as investors end up inflating stocks in some cases simply because there are so few names from which to choose.

“Canada doesn’t have a lot of tech names to champion so sometimes the Canadian tech money all funnels into a couple of companies. We saw that with Nortel and the Research in Motion days. Now, it seems to be Shopify and now Lightspeed,” Lauzon says.

“So, sometimes you might get over your skis because there’s too much money flow into just a few names. That’s why when we invest in tech, you have to go to the United States to get proper diversification,” he says.