Lightspeed POS is a buy for aggressive investors willing to take risks for large potential stock price gains, provided that you need no dividends.
Montreal-based technology stock Lightspeed POS Inc. (TSX—LSPD) lost C$0.84 a share in the year to Mar. 31, 2020. In fiscal 2021, which began on April Fool’s Day, it’s expected to lose a less severe C$0.49 a share. Next year, the company is expected to lose a lower C$0.43 cents a share.
Last year, Lightspeed had a cash outflow of more than $21 million (all numbers are in US dollars unless preceded by a C). With ongoing losses and negative cash flow, the company pays no dividends and we expect it to pay no dividends anytime soon.
Lightspeed looks like a special case
Normally, before we rate a company a buy, we want it to make money—with solid prospects to earn even more each year. We also look at a company’s cash flow statement. Positive cash flow makes it easier for the company to pay its bills. Also, positive cash flow can help a company to grow without taking on excessive debt.
In Lightspeed’s case, we cannot calculate our usual net debt-to-cash-flow measure, since its cash flow is negative. Just keep in mind that the company’s cash of $212 million significantly exceeds its total debt of $45.6 million. Lightspeed need not raise money in the capital markets at the present time.
The trouble is, we rated Ottawa-based Shopify Inc. a hold when it was losing money. That was a mistake. Shopify subsequently became the most valuable company in Canada amid a speculative frenzy. In the past, we’ve seen other stocks—such as Nortel Networks—become Canada’s most valuable stocks before their fall from grace. Nortel ultimately went bankrupt. We considered ‘capitulating’ with Shopify. But capitulation by the market often occurs just as a stock changes direction.
Lightspeed reminds us of Shopify
In some ways, Lightspeed reminds us of Shopify. Given Shopify’s strong performance, we’ve decided to rate Lightspeed a buy. But only for aggressive investors willing to take risks for large potential stock price gains, provided that you need no dividends.
Lightspeed writes that it “provides easy-to-use, omni-channel, commerce-enabling SaaS [Software-as-a-Service] platforms. Our software platforms provide our customers with the critical functionality they need to engage with consumers, manage their operations, accept payments, and grow their businesses. We operate globally in over 100 countries, empowering single- and multi-location small- and medium-sized businesses . . . to compete successfully in an omni-channel market environment by engaging with customers across online, mobile, social and physical channels. We believe that our platforms are essential to our customers’ ability to run and grow their businesses. As a result, most of our revenue is recurring and we have a strong track-record of growing revenue per customer over time.”
“Our cloud platforms are designed around three interrelated elements: front-end consumer experience, back-end operations management to improve our customers’ efficiency and insight, and the facilitation of payments. Key functionalities of our platforms include full omni-channel capabilities, point of sale (POS), product and menu management, inventory management, analytics and reporting, multi-location connectivity, loyalty and customer management.” The company is optimistic about its outlook. It writes: “We believe that the broader roll-out of Lightspeed Payments will further align us with our customers’ success and represents a significant growth opportunity for our Company.” It’s adding on new services.
Stock is a buy for aggressive investors
Lightspeed’s customers represent 76,500 consumer locations in 100 or so countries. That’s up from 49,000 a year earlier. Its customers generate average gross transactions of over $600,000 a year. Last year, cloud-based software-as-a-service gross transaction volume jumped by 54 per cent, to $22.3 billion from the year before. The diversification by country and customers reduces Lightspeed’s risk.
The COVID-19 pandemic, however, has hurt some of its customers. This is true of quick-service restaurants, fine-dining restaurants, hotels and festivals among others.
Lightspeed POS is a buy best suited to aggressive investors willing to run risks in seeking large potential stock price gains, provided that you need no dividends.
This is an edited version of an article that was originally published for subscribers in the July 3, 2020, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
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