Lightspeed is still an expensive stock, this fund manager says

Not all great companies are good buys and according to Andrey Omelchak of LionGuard Capital that rings true for Canadian tech star Lightspeed POS (Lightspeed POS Stock Quote, Chart, News TSX:LSPD). Omelchak says Lightspeed’s share price is too rich, even with the market slump over the past couple
of weeks.

“It has been a tremendous company with a lot of growth potential organically for years to come,” said Omelchak, president and CIO of LionGuard, who spoke on BNN Bloomberg on Wednesday. “I’m not too concerned about potential bankruptcies in the restaurant industry and how it might impact the business. It’s very unfortunate for those businesses but I think Lightspeed will continue gaining share and doing really well and generating potentially some cash flow as it continues to grow.”

Montreal-headquartered Lightspeed runs a cloud-based omnichannel platform geared at small and medium-sized business with a focus on retail, hospitality and the golf industry.

“I think it’s really on the expensive side, despite being a very high quality, and I would love to buy Lightspeed if it becomes cheaper,” Omelchak said. “But to pay approximately 15x sales starts being on the expensive side, despite the extremely high quality of the business.”

The stock dropped with the overall market earlier in the year but has rallied well and sits at plus-16 per cent for the year so far — and that’s considering a 12 per cent slide in recent weeks. Starting off its IPO in March of 2019 at $18 per share, LSPD is now up a full 133 per cent since its debut at $42 and change.

But all those gains make it a difficult buy right now, says Omelchak.

“I think it’s really on the expensive side, despite being a very high quality, and I would love to buy Lightspeed if it becomes cheaper,” Omelchak said. “But to pay approximately 15x sales starts being on the expensive side, despite the extremely high quality of the
business.”

Lightspeed should be getting more attention one way or another with the release of its fiscal second quarter 2021 results (for the period ended September 30) on November 5.

The company last reported in early August where its Q1 saw revenue grow 51 per cent year-over-year to $36.2 million, with the company sporting a net loss of $0.22 per share compared to a loss of $0.11 per share a year earlier. Analysts had been calling for a loss
of $0.10 per share.

COVID-19 hit Lightspeed’s retail and restaurant clients hard over much of the first half of 2020 but the company said it saw a pickup and return to form through June as businesses increased their online sales capabilities.

“As consumers increasingly move online, small and medium-sized businesses are finding success with Lightspeed’s omnichannel solutions –  abandoning the inadequate legacy systems that hold the vast majority of the current market in order to gain the capabilities needed to run digital strategies alongside physical ones in a simple and integrated manner,” Lightspeed’s fiscal Q1 press release said.

Gross transaction volume from its clients increased by 17 per cent in its fiscal first, while recurring revenue up 57 per cent to $33.4 million.

Last week, Lightspeed launched a new subscription-based capability on its platform, enabling businesses to set up and manage recurring monthly billing of customers.

Lightspeed Subscriptions, the company said, should find strong uptake within the health and wellness vertical and gives businesses with a new sales strategy going into the holiday season.

“The introduction of Lightspeed Subscriptions further adds to our comprehensive toolbox of solutions for complex retailers,” said Dax Dasilva, Lightspeed Founder and CEO, in a press release. “We’re approaching a fundamentally different 2020 holiday sales season,
and local retailers need to gear up for a dramatic shift in shopping habits. With this in mind, we’re equipping merchants with an exciting new service that promises a source of uninterrupted revenue and will continue to fuel their businesses into the New Year.”

According to industry advocate group Restaurant Canada the COVID-19 crisis was responsible for as many as 800,000 workers being laid off or having their hours chopped. It says the government’s pledge to create a million jobs could be greatly furthered by helping out restaurants.

“The government has pledged to create 1 million jobs, with a focus on racialized Canadians, young people, and women who have been hit the hardest through the pandemic,” said Todd Barclay, Restaurants Canada CEO. “Restaurants can play a significant role in feeding the recovery as 260,000 of the jobs still lost due to the pandemic are in our industry alone. Fifty-eight per cent of our industry being women and 31 per cent visible minorities, we can help support the government’s growth plans, but we need government help to get our industry moving.”

The not for profit group says as much as $44.8 billion in sales could be lost this year.

“Our industry has lost significant revenues, incurred additional costs and is being targeted for closures, without the data being made public to support this claim,” argued Barclay. “As cases may arise in certain areas, we have been asking authorities to target any restrictions and enforcement to the higher risk areas and not just punish our entire industry”.