Canadian tech darlings Shopify and Lightspeed are both buys, this investor says

Like the rest of the market, e-commerce companies Shopify and Lightspeed got dumped on over the past three weeks as the broader selloff in response to the coronavirus pandemic and dropping oil prices have combined to pull us into bear territory, bringing with them the prospect of a worldwide economic slowdown if not a full-blown recession.

Wednesday came with more pain for the markets as the S&P/TSX Composite Index dropped 577 points or a little under four per cent of its value, while the Dow Jones, S&P 500 and Nasdaq all lost around five per cent. On the Canadian side, energy companies got hit hard but so did tech where Shopify dropped six per cent and Lightspeed was down close to 12 per cent.

Of the two, Lightspeed has fared the worst, having lost a whopping 45 per cent of its value in recent weeks and currently sitting at $24.68, not too far from its market debut a year ago. Shopify is now down 18 per cent from its recent highs and ended trading on Wednesday at $580.83.

Newman says that while buying high-growth names like these two has always been difficult, as the fundamentals often seem out of line with share prices, investors could start digging into SHOP and LSPD now.

“Well number one, this is a waterfall in the market right now, so on Shopify I am a buyer but I'd probably buy it towards the 200-day which is around $493. Even though I own it and I haven't sold hardly any of it, I still think it can probably come down,” said Newman, senior wealth advisor and director of wealth management at Scotia Wealth, who spoke to BNN Bloomberg on Wednesday.

“But how do you own a company like that? I'm a fundamentalist at heart —I need a fundamental earnings model and I need earnings per share. That said, if you're just too focused on that there's going to be times where you just miss the boat,” Newman said.

“Sometimes you just have to look at the chart, sometimes you have to look at other metrics like price to sales. But when you can identify a business that can be ubiquitous, disruptive, necessary to commerce, well run and potentially a global chat champion, you just can't wait for just the numbers per se.”

Newman said that while Shopify has more of a solid track record to go on, Lightspeed has to be considered, if not solely because of the severity of the recent pullback.

“Lightspeed, they're calling this the next Shopify but whenever anybody's trying to find the next Shopify, it won't be,” Newman said. “But it does have a lot of good growth factors. We are modelling brisk growth. And this is a name that’s gotten beat up enough that you probably can pick away at it here, market aside.”

“To the extent that you can buy anything in the market now I think you could buy a little bit of Lightspeed at these levels. It’s gotten really beaten up,” he added.