Lightspeed POS (Lightspeed POS Stock Quote, Chart, News TSX:LSPD) has shown upward movement in the last while in trying to recoup lost ground. But does the stock have what it takes to get back to its early January highs?
Maybe, but there are still a lot of unknowns about such a new company, says Jason Del Vicario of HollisWealth, especially one without any profit yet to speak of.
“They don’t fit our criteria,” says Del Vicario, speaking to BNN Bloomberg on Tuesday. “I would sort of liken them to Shopify although I would hesitate that they might not go up the ten to 15 times that Shopify has, but their revenues, their top line has been increasing rapidly. Yet they are not yet profitable.”
Montreal-based Lightspeed is a cloud-based commerce platform which supplies restaurants and retailers with operations and point-of-sale tech including payments, customer engagement and analysis.
The company got off to a great start publicly with its $240-million IPO last March, selling 15 million shares and becoming the biggest tech IPO in Canada in nine years. The stock jumped out of the gate and rose from $18 to as high as $49 by August before coming back down to earth.
LSPD’s COVID-19-induced fall has been precipitous, however, as many of the company’s bread-and-butter clients have all but closed up shop due to social distancing and government-imposed restrictions.
Lightspeed management delivered a business update in early April to say that while they still believe LSPD will hit the upper end of its previously-announced guidance range with its fourth quarter 2020 results (due to be reported on May 17) and while the company remains well-capitalized with about US$220 million in cash, Lightspeed won’t be dodging the blow of COVID-19.
“The current global crisis clearly continues to impact Lightspeed’s retail and hospitality customers, including their gross transaction volume, overall demand for Lightspeed services and anticipated churn rates due to business closures. As long as social distancing measures persist, we expect this to have a negative impact on Lightspeed’s financial performance,” management wrote.
Del Vicario says LSPD could be in an investor’s portfolio but a prudently small position would be best.
“Our screen is very simple. We’re looking for companies that have been able to generate a high return on capital greater than 20 per cent for at least three years in a row. The reason that we require that three year in a row stipulation is because we want to see some consistency,” he said.
“I would say that at this point Lightspeed could comprise a fairly small percentage of somebody’s portfolio, maybe half a percent or 1 per cent,” he says. “If it goes to zero, which I’m not saying it is, that’s a small hit on the overall portfolio. If it goes up tenfold or 15-fold like Shopify, it’ll also have a meaningful impact. So, if [you] want to own it I think that’s probably a good idea but the position should be sized appropriately given one’s time horizon and risk profile.”