Lightspeed POS is still a buy, says PI Financial

Lightspeed POS (Lightspeed POS Stock Quote, Chart, News TSX:LSPD) may not be the cheapest stock out there but the company’s growth potential should be enough to make you a buyer.

So says PI Financial analyst Gus Papageorgiou, who gave a corporate update to clients on Tuesday in
anticipation of LSPD’s quarterly results due this Thursday. The analyst maintained his “Buy” rating and C$49.00 per share target, which at press time represented a projected 12-month return of 11 per cent.

SaaS-based point-of-sales solutions company Lightspeed will be releasing its third quarter fiscal 2020 financials on Thursday, for the period over which it acquired Australia-based POS company Kounta Holdings.

The major acquisition is likely to boost Lightspeed’s revenue, says Papageorgiou, who also point to the company’s growing customer base and the increasing adoption of LSPD’s service offering by established
customers are further reasons to expect a strong top line in the Q3.

The analyst, who is calling the impact of the quarterly release a positive for the company and stock, will be expecting $31.8 million in revenue, a 58 per cent year-over-year growth rate, and an earnings loss of $0.10 per share, with some of that growth said to be attributable to Kounta — Kounta adds 7,000 locations to Lightspeed’s base on 57,000.

Papageorgiou says while Lightspeed, which debuted as a publicly-traded company last March, has more than enough cash to operate it may need to raise more capital in order to keep up its M&A activity, which last month included the purchase of German POS business Gastrofix.

“Because of its limited operations as a public company it is difficult to judge how effective these acquisitions have been,” says Papageorgiou. “However, they have all been undertaken at accretive valuations, they represent geographies that complement the Company’s operations, and they allow capacity to upgrade the existing base to higher ARPU. After the last acquisition the Company saw its share price move 20 per cent in the pursuing two weeks.”

The analyst cautions that the Kounta and Gastrofix acquisitions are likely to drag down Lightspeed’s ARPU, seeing as theirs was lower than LSPD’s — Kounta at $11.5, Gastrofix at $78 and LSPD at $157. Moreover, that lag may be able to be reduced over the next few quarters as LSPD brings up the acquired customers closer to its own performance level, an strong opportunity for Lightspeed, says Papageorgiou. (All figures in US dollars unless where noted otherwise.)

Looking ahead, the analyst is calling for full fiscal 2020 revenue of $121.9 million and EBITDA of negative $23.1 million and adjusted EPS of negative $0.26 per share.

LSPD ended 2019 a veritable double and in January the stock climbed 19 per cent. But Papageorgiou says there is upside still available.

“The shares are expensive trading at around 15x EV/Sales but we believe the growth validates the high multiple,” writes Papageorgiou.

Lightspeed last delivered its financials on November 7 where its fiscal second quarter ended September 30 featured revenue up 51 per cent to $28.0 million and ahead of guidance at $26.5 to $26 million. Adjusted EBITDA loss of $5.1 million compared to a loss of $2.7 million a year earlier.