Canadian payments and e-commerce company Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials TSX:LSPD) looks to be following the right path to profitability, according to ATB Capital Markets analyst Martin Toner, who profiled the company in ATB’s weekly Growth & Innovation report on Sunday.
Lightspeed Commerce, a Montreal-based tech firm with cloud commerce solutions for businesses’ online and physical operations, emerged as a publicly traded company four years ago in March, 2019. The stock was a quick hit with investors, with LSPD doubling in value in a matter of months.
The pandemic saw another big incline for the stock, which went from $45 at the start of 2020 to about $155 per share by September 2021. But it’s been a long way down since then, and Lightspeed has been trading back around $20 for the past six months.
Toner focused in his commentary on a pivot currently being taken by a number of payments companies in response to the more challenging current macroeconomic environment. Instead of putting energies towards expanding their customer base by appealing to as many different types of customers as possible, many are narrowing their sights and gunning for quality over quantity.
Crunching the numbers, Toner compared valuations and fundamentals for companies falling into either the Quality or Quantity group, with the results showing a nuanced picture as for as the market has received them.
“The average price-to-sales (P/S) multiple for the quality group was lower than the quantity group across all three time periods analyzed, reflecting investor pessimism about the ability to pivot successfully,” Toner wrote.
“Since multiples from both groups have fallen over the past year, we observed growth metrics. Revenue growth in the quantity group was considerably more substantial. However, this delta has narrow when compared on both a last 12 months basis and an next 12 months basis,” he said.
On Lightspeed, Toner said the stock has clearly gone out of favour with investors, and he pointed to management’s belief that in focusing on higher-quality merchants the company should generate higher subscription average revenue per user (ARPU).
Toner said the strategy should pay off.
“The Company has observed 20 per cent year-over-year ARPU growth and believes simplifying its go- to-market approach with One Lightspeed will drive significant savings and efficient growth, with management expecting to reach profitability in FY2024. We believe these results show that combining profitability with growth re-acceleration will reward investors with significantly higher multiples,” Toner said.
With the update, Toner kept an “Outperform” rating and $55.00 price target on Lightspeed, implying at press time a one-year return to target of 193.5 per cent.
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