Business & Investment

Why Lightspeed Stock runs out of Steam

Knowing when to fold is just as important as knowing when to hold them.

In this case, I think there is momentum behind Lightspeed POS (TSX: LSPD)(NYSE: LSPD) It may be missing.

For the past month, the company’s stock has basically been traded sideways. I think the market is trying to justify these current valuations and is having a hard time doing so. Lightspeed is currently trading at a premium, even when compared to some of the most acclaimed tech stocks out there. I think this premium may be unreasonable, and the market is starting to do this.

Business model concerns have not diminished (yet)

The considerable optimism we see about mass vaccination with vaccines released to the general public is undoubtedly bullish for strains like Lightspeed. Lightspeed customers can get better results when pandemic-related restrictions are lifted and shoppers can return to packing bars and restaurants.

Indeed, counterparty risk was a significant drop in Lightspeed’s share price last March. Investors sought to expect what the bankruptcy of the entire small business (SME) would mean for Lightspeed’s stock. After all, the Lightspeed platform is primarily used by SMEs and certainly doesn’t work well in scenarios where the core customer base is experiencing solvency issues.

The good news for Lightspeed investors is that the company’s cash flow turned out to be very stable throughout the pandemic. Given the relatively low cost of the Lightspeed platform and its well-designed and effective products, the company has actually grown through a pandemic.

It turns out that small businesses needed a multi-channel platform like Lightspeed to move to e-commerce during a pandemic. Lightspeed was able to effectively capture the POS market during difficult times. This is certainly good for investors.

However, concerns remain about Lightspeed’s ability to increase market share in the face of economic uncertainty. In my view, investors need to be very bullish on light speed to buy this stock at these levels. The fact that concerns about these business models have not been completely mitigated is one of the reasons this inventory has lost momentum these days.

Evaluation approaching nosebleed level

Lightspeed Tremendous growth potential just now? definitely. The stability of the business model mentioned above and growth throughout the era when many expected problems are long-term bullish. That said, the company’s valuations are currently experiencing tremendous growth. The extent to which Lightspeed can grow to a reasonable multiple of valuations is questionable at this time.

Stocks that trade in multiples of 50x or more sales are something most fundamentals-minded investors want to avoid. This is the stock exclusively for the most bullish long-term growth investors. If this is a stock that does not fit your risk profile, I suggest waiting for a pullback.

As we have seen in the past, this is a stock that has significantly reduced the weakness of the economy. If this situation becomes a reality and the valuation of this stock approaches a more attractive level, this could be a buying opportunity. For now, I’m still a bystander of this stock.

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Stupid contributor Chris Macdonald There are no positions in any of the listed stocks. Motley Fool owns a stake in Lightspeed POS Inc.

Why Lightspeed Stock runs out of Steam

https://www.fool.ca/2021/01/22/why-lightspeed-stock-has-run-out-of-steam/ Why Lightspeed Stock runs out of Steam

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