Is This Stock the Next Shopify? Don’t Miss Out on This Hot TSX Tech Stock

While Shopify gets a lot of attention, many investors do not know about another Canadian tech name: Lightspeed POS (TSX:LSPD).

| More on:
Overhead shot of young adults using technology at a table

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn moresdf

The recent market volatility we’ve all seen has included a severe drop followed by an extremely quick rebound. Perhaps not surprising to many investors, tech names like Lightspeed POS (TSX:LSPD) have led this recovery. In this article, I’m going to discuss the bullish and bearish drivers of the stock for readers.

Great business model

Despite my bearish tone on Lightspeed in the past, I recognize what many other investors see: a great business model. Canadian investors, and global investors, for that matter, are all searching for the next Shopify. Lightspeed fits the bill.

Similar to Shopify and other Software-as-a-Service companies, Lightspeed is largely viewed as insulated from negative market forces. This is because the company charges fees that are very low, relatively speaking; fixed-cost merchants are more likely to maintain payments.

Through this uncertainty, Lightspeed is being viewed as a utility of sorts. Therefore, investors seem to feel Lightspeed’s payments are likely to continue for most small and medium enterprises (SMEs). That is certainly a good thing.

This utility-like business model buffer, which is being priced in by the market, is a key driver of why the potential churn via mass bankruptcies of SMEs globally doesn’t seem to be factored in for Lightspeed right now. This is despite tens of millions of unemployment claims since March in North America. Moreover, weekly job loss numbers have continued to roll in above one million.

However, the market seems to still believe we’ve seen the worst of the economic pain. Perhaps they even believe the Federal Reserve will save the day, and we’ll be in for another decade-long bull market. If this is true, many investors may get the fear of missing out from not buying Lightspeed on the dip, hence the rally.

Growth has become way more valuable than gold. Missing out on these rallies appears to be more painful than considering the true economic distress I believe we’re about to see.

Churn and other risks are very real

As an independent investor, considering all risks associated with any investors is a Foolish thing to do. One likely risk is that the previous market volatility we saw is truly reflected in insolvency issues for SMEs in North America and globally. This will lead to companies like Lightspeed experiencing some serious churn. In turn, this would negatively affect top-line growth.

Moreover, top-line growth is the only metric investors seem to care about for growth plays like Lightspeed. This could provide material medium-term headwinds. Further, this could potentially provide additional volatility moving forward.

Bottom line

Growth at any cost is a dangerous mindset. Given the underlying structural economic issues I believe are on the horizon, it could be more costly than ever in the coming 12 months. I do not see a realistic path for companies like Lightspeed that have never been profitable.

I don’t believe these companies will magically turn the corner and generate high levels of free cash flow. It’s even less likely they will maintain parabolic revenue growth in the coming years. The risks are simply too great.

I would encourage investors to focus on companies with a proven track record of profitable profitability at this point in time.

Stay Foolish, my friends.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify and Shopify. The Motley Fool owns shares of Lightspeed POS Inc.

More on Tech Stocks

A worker uses a double monitor computer screen in an office.
Tech Stocks

Why Shopify Stock Sold Off Last Week

Shopify (TSX:SHOP) sold off heavily last week. A bad earnings release may have been the culprit.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

2 Phenomenal Growth Stocks Down 30-60% That Could Rally in the Next Bull Market

Is it time to buy growth stocks? The worst of the interest rate hike and inflation is over, and now…

Read more »

stock market
Tech Stocks

2 Best Tech Stocks to Buy Before the Next Bull Market

Tech stocks such as Roku and Nuvei can help long-term investors generate outsized gains in 2023 and beyond.

Read more »

Wireless technology
Tech Stocks

Tucows Stock Trades Near its 6-Year Low: Is it a Buy?  

Tucows stock fell 63% in the tech stock sell-off and has failed to show any recovery. Is this domain and…

Read more »

Male IT Specialist Holds Laptop and Discusses Work with Female Server Technician. They're Standing in Data Center, Rack Server Cabinet with Cloud Server Icon and Visualization
Tech Stocks

Is Converge Stock a Buy?

A relatively new tech stock could soar higher with the pause in rate hikes, although a resumption of the cycle…

Read more »

online shopping
Tech Stocks

Up by 25%: Is Shopify Stock Finally a Buy in 2023?

The strong rebound in the TSX’s top tech stock remains uncertain. Investors will have to wait before it delivers stellar…

Read more »

Businessman holding AI cloud
Tech Stocks

2 TSX Tech Stocks Innovating Hard in AI

Shopify (TSX:SHOP) stock and another intriguing Canadian gem make good use of AI technologies.

Read more »

worry concern
Tech Stocks

Shopify Stock: Incredible Bargain or Deceptive Trap?

Shopify has quickly shifted from a market darling to something else. Is it a safe buy or risqué bet?

Read more »