Yesterday it was a long-running but newly urgent (or so they said) pitch from Tom Gardner at the Motley Fool that got my attention… today it’s a piece from their Canadian offspring, as Iain Butler from Motley Fool Canada teases a “next Shopify” company.
Here’s how the ad launches:
“Not to alarm you, but you’re about to miss an important and rare event in stock market history…
“You see, I recently stumbled onto a practically unknown (yet publicly traded) Canadian company following so closely in Shopify’s footsteps that it has seriously caught the attention of Iain Butler himself…
“The same renowned Canadian investor who actually did recommend Shopify back in 2016 and has racked up over 3,718% gains since then.”
That’s true, Butler was the first one to tease Shopify (SHOP) that I saw — and was the inspiration for me writing about SHOP for the first time a little over four years ago when it was at about $30 a share. I don’t know whether he or Tom Gardner at the Motley Fool US was technically the first to recommend it to their subscribers but both were apparently big fans starting early in 2016. And it has, of course, worked out fantastically well for anyone who has bought the stock in the past five years (well… except for those who bought in the last two months when it was hitting new highs above $1,100).
So is this just a repeat of his “Shopify 2.0” pitch from last year? Let’s see…
“… the under-the-radar (yet fast-growing) stock Iain has found which has some striking similarities to Shopify….
“Shares of this tiny TSX-traded company haven’t been available for long, but Iain believes it might be the perfect time to make a move on this stock.
“Here’s why this is such an important (and rare) move:
“In the past 7 years, there has only been ONE other occasion Iain Butler has alerted investors to a Canadian company fresh off its IPO.”
That was, of course, Shopify…
“Perhaps no example better highlights this rare conviction like Iain’s March 2016 recommendation of Shopify.
“It was a small-cap stock that had just gone public on May 21, 2015, when Iain Butler first published his detailed, +1,500 word “buy” report on Shopify’s stock and recommended Canadian investors pick up shares immediately….
“While you can’t go back in time and invest in Shopify alongside Iain Butler, I believe I’m offering you the next best thing…”
So what other clues do we get about this new fella?
“The chance to get in early on the new recent-IPO stock that’s come to Iain’s attention.
“The company has made a series of major acquisitions to leap-frog growth…
“Revenue has increased by a whopping 56% in the past year alone…
“Management expects continued double-digit revenue growth going forward…
“Because he wants as many investors as possible to potentially profit from this fast-growing stock, Iain just published a brand-new, comprehensive report inside Stock Advisor Canada that gives you the FULL scoop on this exciting company.”
So what is it? This is, sad to say, a repeat of Butler’s tease of Lightspeed (LSPD.TO, LGHEF) that was first used as a “Shopify 2.0” teaser pitch about a year ago.
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Lightspeed is a cloud POS business, they provide the software for managing retail transactions, mostly for physical businesses — so go some degree they’re going up directly against much larger firms like Square (SQ) and Shopify (SHOP), though their initial push was largely in restaurants so they also battle with other small firms like Par Technology (PAR, which I own). They have an investor presentation up here on their site if you’d like to get a quick overview. This is how they describe themselves:
“Lightspeed POS Inc. is a leading provider of software, solutions and support systems to the small and medium size retailers and restaurateurs that are at the heart of our communities. Our mission is to empower these businesses, helping them engage with consumers, manage operations, accept payments and generate growth.”
I did very briefly own a small Lightspeed position, after nibbling a little while after I first wrote about it a year ago, but was stopped out quickly, last October, before I had the opportunity to build much conviction about their prospects.
Since I dropped my position at $25 it has surged back into the $30s, fallen to $8 at the March collapse, and come back now to the low $30s. They have a long row to hoe if they’re going to get to sustainability — they have grown revenue very fast, but have not become any more profitable over the past couple years, since their cost of goods and their operating expenses are growing at least as fast as their revenue.
Lightspeed still has plenty of cash, and their cash flow is a little better than their income (thanks to share-based compensation), so they’re in fine shape for the moment — they raised a lot of money in early 2019 when they went public, and raised more again at the beginning of this year before the coronavirus bit into the business, so they should be in decent shape… they’re going up against lots of competitors, both big and small, but the revenue growth does tell us that they are at least getting customers in the door. Whether they can continue to build their business to the point that it doesn’t consume cash, I have no idea. It’s a little surprising, frankly, that Shopify didn’t buy them a couple years ago to integrate their in-person POS with Shopify’s growing in-person systems to further strengthen them as the leading Canadian retail technology company…. but maybe they’re just not compatible (Ottawa vs. Montreal, let the pucks fly!).
If our current tech stock dip is temporary (and it might not be, I have no idea), it’s likely true that Lightspeed would probably be priced at even more of a premium if it traded on a US exchange — so it’s quite possible that there’s another 20%+ of possible returns just sitting out there if they do file for a US listing and get more attention, but that’s certainly a “rich getting richer” speculation. It’s an exciting sounding company, with numbers that are pretty impressive but not as obviously appealing as Shopify’s were in their early days (SHOP had a clear trajectory to profitability in 2016, though opted to push for more growth instead — LSPD might grow into that trajectory, too, but it’s not as obvious given that their costs have risen faster than their revenue). Certainly they’ve been able to spend heavily and grow fast in their first couple years as a public company, and once you’re over that hurdle to building a sustainable business it can sometimes really take off. I certainly never thought Shopify would be trading in the $1,000+ range this year, nor would I have guessed that it would trade at 50X revenues, so predicting what will happen to a high-growth cloud stock is a good way to test your humility.
But yes, the Foolies are still fans — and Iain Butler apparently believes it’s still early in the opportunity. Whether that works for your portfolio or not, well, you’ll have to make that call… if you’ve owned or thought about investing in Lightspeed, please do let us know what you’re thinking with a comment below. Thanks for reading!
Disclosure: Among the companies mentioned above I own shares of Shopify and Par Technology. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.