Stock Analysis

Investors Give Lightspeed Commerce Inc. (TSE:LSPD) Shares A 27% Hiding

Published
TSX:LSPD
Source: Shutterstock

Lightspeed Commerce Inc. (TSE:LSPD) shares have had a horrible month, losing 27% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 13% in that time.

Following the heavy fall in price, Lightspeed Commerce may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.4x, since almost half of all companies in the Software industry in Canada have P/S ratios greater than 3.8x and even P/S higher than 11x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Lightspeed Commerce

ps-multiple-vs-industry
TSX:LSPD Price to Sales Ratio vs Industry February 21st 2024

How Has Lightspeed Commerce Performed Recently?

There hasn't been much to differentiate Lightspeed Commerce's and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be 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.

Taking a look back first, we see that the company grew revenue by an impressive 25% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 23% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 16% per year growth forecast for the broader industry.

In light of this, it's peculiar that Lightspeed Commerce's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Lightspeed Commerce's recently weak share price has pulled its P/S back below other Software companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Lightspeed Commerce's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Lightspeed Commerce that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Valuation is complex, but we're helping make it simple.

Find out whether Lightspeed Commerce is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

About TSX:LSPD

Lightspeed Commerce

Lightspeed Commerce Inc. engages in sale of cloud-based software subscriptions and payments solutions for small and midsize businesses, retailers, restaurants, and golf course operators in North America, Europe, the United Kingdom, Australia, New Zealand, and internationally.

Undervalued with excellent balance sheet.