Lightspeed will be alright, this portfolio manager says

Canadian tech company Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials NYSE:LSPD) took a big tumble yesterday as the market reacted to the company’s latest quarterly report. And after posting solid gains so far in 2021 the stock is now a little under water for the year, leaving investors wondering where the stock is headed.

It’s not a time to panic, says David Burrows of Barometer Capital Management, but neither is it a time to be adding to your position. Burrows says it’s likely best to wait out the rough patch on Lightspeed.

As long as [the stock] stays above the rising 250 and 200-day moving averages … we would stay in the stock,” said Burrows, president and chief investment strategist at Barometer, who spoke on BNN Bloomberg on Thursday.

“When something breaks down in a strong market and there are question marks and it breaks all of the technical support I think you have to let the traffic clear,” he said.

The $13 billion market cap company Lightspeed released its second quarter fiscal 2022 results on Thursday, showing revenue up 193 per cent year-over-year to $133.2 million, with gross transaction volume on its commerce platform rising 123 per cent to $18.8 billion. (All figures in US dollars.)

Those strong gains are in part due to big acquisitions Lightspeed has made over the past year, along with organic growth from its businesses. 

“Lightspeed’s powerful commerce platform has helped our customers to not only survive the worst of the pandemic but thrive in the recovery.” said Dax Dasilva, Founder and CEO, in a press release. “With the addition of Ecwid and NuORDER, Lightspeed will continue to deploy revolutionary technology that will allow our customers to meet the future with greater insights, control and confidence than they have ever had in the past.”

The company posted an operating loss of $74.8 million, however, and management’s outlook for the upcoming quarter is calling for revenue to grow only slightly on a sequential basis, with the forecast being for a fiscal Q3 topline of between $140 and $145 million.

On the earnings call, the company said investments in the business and its expansion into further corners of the US market along with integration costs associated with the new acquisitions will hamper profitability over the near term.

“We expect we’ll continue to grow our market. However, we’re also mindful of certain market dynamics that are outside of our control will keep us cautious on the impact to our near-term results, namely, but the impacts of COVID-19 remain in many of our important markets and ongoing supply chain challenges affecting many parts of the global economy and the effects that may have on our customers’ ability to have sufficient inventory to meet consumer demand as well as on our own ability to secure hardware to meet our own customer demand, which affects our owned hardware revenue,” said CFO Brandon Nussey in the November 4 earnings call.

The muted tone plus lingering concerns related to a short-seller report that surfaced in September may have factored into the stock’s plunge on Thursday. LSPD had been hanging around the $70 per share mark over the first half of the year before taking off and reaching as high as $125 before pulling back to under $100. But the stock dropped from about $99 to $71 on Thursday, representing a 28 per cent decrease.

Burrows said investors should wait for LSPD to settle before making any moves.

“It may be that this sell-off is overdone, it may be that there are things that we don’t know [or] it may just be that it’s a high multiple stock that disappointed, and that certainly is the case today. But I would wait to see the stock rebuild some technical footing,” Burrows said.

“There should be a bunch of support in and around the $50 to $55 level, but that’s still significantly below where it is now at $68. So I would stand clear on this one,” he said.

“There are a lot of choices and I always say if you only need 15 or 20 companies to build a portfolio and there are thousands that you could choose from, you don’t want to buy the one that has the current question mark because, ultimately, if we get a great six months in the market, which I think is a good possibility that we could, there are other things to [look at],” Burrows said.

As for the Canadian e-commerce space, Burrows likes Shopify (Shopify Stock Quote, Charts, News, Analysts, Financials NYSE:SHOP), even with its strong gains over the past few years.

“Shopify is hanging in remarkably well and frankly it’s gained relative performance versus Amazon,” he said. 

“I would prefer to look at something like a Shopify, but even still, that whole online retail group continues to struggle a little bit,” he said.