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Shopify and Lightspeed are trading at “eye watering” valuations, this investor says


Shopify Lightspeed
Jason Del Vicario
Canada’s tech sector has its share of solid workhorses — Descartes Systems, Constellation Software and OpenText, to name a few. But don’t count Shopify (Shopify Stock Quote, Chart, News TSX:SHOP) or Lightspeed POS (Lightspeed POS Stock Quote, Chart, News TSX:LSPD) in that group, says portfolio manager Jason Del Vicario, who argues that the stocks are just too uncertain for anything but a flyer in your portfolio.

Shopify is continuing its torrid pace into the new year, as the market can’t seem to get enough of the e-commerce sensation. The stock shot up an incredible 176 per cent in 2019 —and that’s even with a two-month downturn midyear which dropped the stock 30 per cent.

And so far, 2020 looks to be no different, with SHOP already up 17 per cent and cresting the $600 per share mark.

Shopify’s e-commerce cousin in the point of sale market, Lightspeed, may have less history as a publicly traded company, having debuted to much fanfare last March, but there’s already a lot of buzz around the company, its aggressive M&A program and growth prospects.

2019 saw Lightspeed acquire Australian point-of-sale company Kounta Holdings, Swiss-based POS company IKentoo and Montreal-based golf industry software company Chronogolf, while already in 2020 Lightspeed has announced a $164-million deal to buy German point-of-sale company Gastrofix.

“The addition of Gastrofix to our team further solidifies Lightspeed as a leader in cloud-based POS technology and establishes our immense footprint powering SMBs across the globe,” Lightspeed CEO Dax Dasilva said in a press release.

The flurry of activity has helped boost LSPD’s share price, which finished 2019 a double, up 99 per cent, and has put on 18 per cent more over the first few weeks of 2020.

Those sparkling gains for companies with so much promise should be a cause for celebration — and maybe so, but Del Vicario, who spoke to BNN Bloomberg on Monday, has a word of caution for investors thinking about adding either Shopify or Lightspeed, saying that the requisite clear sight lines to profitablity just aren’t there.

“I’ve been on [BNN Bloomberg] before shedding a few tears on the fact that we owned Shopify and then sold it — we’ve been quite public about that mistake,” said Del Vicario of HollisWealth. “The reality is that neither of these companies meet our criteria. They certainly have rapidly-growing top lines but their bottom lines aren’t where we’d like them to be.”

“Quite frankly, we know what we know and we know what we don’t know, and we simply don’t know enough about Shopify’s and Lightspeed’s bottom lines at this point to be comfortable with them,” he said.

“We do like the payments space with Visa and Mastercard but the valuations that [Shopify and Lightspeed] are trading at are eye-watering,” Del Vicario said. “So, I don’t see these being large allocations for somebody’s portfolio but if you wanted to take a little punt and accept the fact that these can be quite volatile, I think that longer-term you’re probably going to be okay.”

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