Further Upside For Lightspeed Commerce Inc. (TSE:LSPD) Shares Could Introduce Price Risks After 26% Bounce

Lightspeed Commerce Inc. (TSE:LSPD) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 18% is also fairly reasonable.

Even after such a large jump in price, Lightspeed Commerce's price-to-sales (or "P/S") ratio of 2.6x might still make it look like a buy right now compared to the Software industry in Canada, where around half of the companies have P/S ratios above 3.8x and even P/S above 8x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Lightspeed Commerce

How Has Lightspeed Commerce Performed Recently?

With revenue growth that's superior to most other companies of late, Lightspeed Commerce has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Keen to find out how analysts think Lightspeed Commerce's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Lightspeed Commerce's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Lightspeed Commerce's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. Pleasingly, revenue has also lifted 221% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 19% as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 20%, which is not materially different.

With this in consideration, we find it intriguing that Lightspeed Commerce's P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

The latest share price surge wasn't enough to lift Lightspeed Commerce's P/S close to the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Lightspeed Commerce's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Before you take the next step, you should know about the 1 warning sign for Lightspeed Commerce that we have uncovered.

If these risks are making you reconsider your opinion on Lightspeed Commerce, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.