Lightspeed POS, should you own this stock?

Jason Del Vicario is of two minds when it comes to Canadian e-commerce company Lightspeed POS (Lightspeed POS Stock Quote, Chart, News, Analysts, Financials TSX:LSPD), which has almost quadrupled in value since going public in early 2019. On the one hand, the sky’s the limit in terms of growth potential for a good-looking company like LSPD, while on the other hand, Del Vicario says Lightspeed is still a show-me story, which means it deserves but a small slice of your portfolio.

“We do own Lightspeed. It’s a new company and their revenues are growing very rapidly and we do see a long runway in terms of them being able to continue to grow,” says Del Vicario, portfolio manager at Hillside Wealth Management, speaking on BNN Bloomberg on Tuesday.

“But they don’t have the net income or free cash flow that we’d like to see and certainly not the history that we like to see. So this is a very small position for us. It’s a bit speculative in nature,” Del Vicario said.

Montreal-based Lightspeed is a cloud-based point-of-sale (POS) platform for retailers and restaurants which allows end-to-end management of aspects such as inventory, loyalty, sales and analytics. The stock has been on fire over the past few months, as investors seemingly approve of the company’s latest moves.

Lightspeed closed on the acquisition of New York-based cloud commerce platform ShopKeep in November, a deal for $145.2 million which boosted the company’s client base to over 100,000 worldwide. In December, LSPD announced the acquisition of leading US restaurant management cloud software company Upserve for $430 million.

On the latter deal, Lightspeed Founder and CEO said combining with Upserve is a strategic next step for the company, one which would accelerate product innovation and add leadership to his team.

Since early November, Lightspeed’s share price doubled, going from $45 to as high as $96 by mid-January, although the stock has pulled back in recent sessions.

Lightspeed, which will report its fiscal third quarter 2021 results on February 4, announced its Q2 fiscal 2020 on November 5. There the company posted revenue up 62 per cent year-over-year to $45.5 million and an adjusted EBITDA loss of $2.8 million compared to a loss of $5.1 million a year earlier. Lightspeed’s Software and Payments business was boosted by acquisitions Gastrofix and Kounta, whose contributions were first felt in the fiscal second quarter.

Lightspeed’s advances look impressive, especially for a company whose main customers in small- and medium-sized businesses took the brunt of COVID-19-induced shutdowns over 2020. But the company has a long way to go and a reasonable amount of uncertainty about how it’ll get there, and Del Vicario says that should provoke investors to allot just a portion of their investment dollars on LSPD.

“We bought Lightspeed at $38 and it’s now at $90, and we’ve been trimming it. I think if it breaks $100 here we’ll probably trim a little bit more,” Del Vicario said. “But I want to be very clear that this is sized appropriately — it’s about a two per cent position for clients that started off as a 0.66 per cent position for us. So, this type of allocation in our portfolios is very small.”

“Another company that would fit that bill would be MicroStrategy (MicroStrategy Stock Quote, Chart, News, Analysts, Financials NASDAQ:MSTR), which has done very well, but the bulk of our portfolio is really invested in companies that have that long term history of producing steady returns on invested cash flow,” he said.

“Where Lightspeed goes from here I don’t know. I’m impressed with their CEO, I’m impressed with their allocation of capital in terms of the acquisitions that they’ve done, but let’s just be very clear that this still remains an uncertain future for them but one that at this point at least looks very bright, so I would size the position small and if it does go up 100, 200, 300 per cent, then think about that scenario: if you wanted it to ultimately be three or four or five per cent of your portfolio you would start off now with about a one-per-cent weight,” Del Vicario said.

“And if for some reason we you know we see a tech bubble type blow up where the stocks go down 90 per cent, well, you’ve only risked one per cent of your capital,” Del Vicario said. “When we’re talking about speculation, position sizing is key. It is the everything in terms of the speculative portion of one’s portfolio.”

Earlier this month, Lightspeed launched its Supplier Network for North American retailers, a supply chain management stock ordering solution for SMBs. The new software will empower small and medium-sized businesses by giving them strategic inventory visibility “once reserved predominantly for enterprise retail and eCommerce giants,” according to Lightspeed’s January 12 press release.

Also earlier in January, National Bank Financial analyst Richard Tse called Lightspeed one of his best bets in technology for 2021, saying the company has adapted quickly to the challenges posed by COVID-19 through a series of product enhancements. The analyst gave LSPD a reiterated “Outperform” rating and raised his target to US$80, which at publication date represented a projected one-year return of 7.3 per cent.