Is Lightspeed (TSX:LSPD) undervalued?

ATB Capital Markets analyst Martin Toner says Lightspeed Commerce’s (Lightspeed Commerce Stock Quote, Chart, News, Analysts, Financials TSX:LSPD) Q1 results showed stronger-than-expected revenue, but gross margin pressure and a slight Adjusted EBITDA miss kept the stock in neutral territory.

In a July 31 update, Toner maintained his “Sector Perform” rating and $18.00 target on Lightspeed. His target implies a 33% return.

Lightspeed reported Q1 fiscal 2027 revenue of $322.7-million, up 5.8% year-over-year on a reported basis and 17% organically, ahead of consensus at $311.0-million. Gross profit was $138.6-million, representing a 42.9% gross margin.

Adjusted EBITDA was $17.5-million, slightly below consensus at $18.0-million, while net loss narrowed to $2.4-million.

Toner said revenue was supported by software growth and payments adoption, while gross margin was pressured by hardware supply chain costs and payment mix.

Gross payment volume reached $11.3-billion, with payment penetration of 44%. Monthly average revenue per user increased 13% organically to about $676.

Customer locations in Lightspeed’s core growth engines rose 10% year-over-year, within management’s long-term target range of 10% to 15%. Net location additions of 1,300 reflected seasonal Q1 softness and the removal of about 500 low-ARPU locations tied to the termination of a legacy white-label agreement.

During the quarter, Lightspeed repurchased and cancelled about 6.97-million shares for $65.1-million under its normal course issuer bid.

Toner said management’s 10% reduction in product and technology staff after quarter-end should lower R&D expenses beginning in Q2. He also expects hardware margins to improve in the second half of fiscal 2027 as cost controls take effect.

For Q2, Toner forecasts revenue of $319.5-million and Adjusted EBITDA of $22.2-million, in line with management’s Adjusted EBITDA guidance of $20-million to $25-million.

He now expects Lightspeed to generate Adjusted EBITDA of $86.1-million on revenue of $1.26-billion in fiscal 2027, followed by Adjusted EBITDA of $147.6-million on revenue of $1.45-billion in fiscal 2028.

Toner said his $18.00 target is based on a discounted cash flow valuation using a 16.0% discount rate and 2.5% terminal growth rate.

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