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Inside the Market Monday’s TSX breakouts: A soaring newly listed growth stock to put on your radar

On today’s TSX Breakouts report, there are 56 stocks on the positive breakouts list (stocks with positive price momentum), and 12 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a recently listed stock that may appear on the positive breakouts list once the stock has a longer trading history. It is a stock that growth investors may want to put on their radar screens given its strong top line growth forecast (over 30 per cent year-over-year revenue growth is anticipated). The share price has rallied nearly 50 per cent from its initial public offering price. As a result, the share price may need to consolidate, trade sideways, digesting these gains before climbing higher. The share price trades at a slight discount its industry peer, Shopify Inc. The Caisse de dépôt et placement du Québec is a large shareholder owning over 40 per cent of the shares outstanding. The security highlighted below is Lightspeed POS Inc. (LSPD-T).

A brief outline is provided below that may serve as a springboard for further fundamental research.

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The company

Headquartered in Montreal, the company’s software allows its customers (small to mid-sized retailers and restaurant operators) to accept payments and oversee their operations (e.g. inventory, customer, and product management) through Lightspeed’s cloud-based platform. Given the company’s subscription-based business model, 89 per cent of the company’s revenue is recurring in nature (for the 12-month period as of Dec. 31, 2018). Over 70 per cent of customers sign on with a contact term of one-year or longer. The company has a diversified customer base with no individual customer accounting for more than 1 per cent of revenue. In terms of geographical breakdown, 35 per cent of the company’s revenue originates outside of North America. Lightspeed has operations in roughly 100 countries.

Management’s growth strategy includes both organic (internal) and acquisition growth. The company continues to expand its customer base as well as its services offered - additional modules are being added to its platform driving higher average revenue per user (ARPU). Since it was founded in 2005, the company has completed five acquisitions.

The initial public offering (IPO) was successfully increased. The IPO price was raised to $16 from its initial target of between $13 and $15 with 17,250,000 shares issued and the over-allotment exercised.

The Caisse de dépôt et placement du Québec is a large shareholder owning over 40 per cent of the shares outstanding.

Lightspeed is expected to report its fourth-quarter fiscal 2019 financial results after the market closes on May 15. The company’s fiscal year-end is March 31.

Dividend policy

Management is focused on growth, and as a result, the company currently does not pay its shareholders a dividend.

Analysts’ recommendations

This stock with a market capitalization of $2-billion is currently covered by four analysts, of which three analysts have buy recommendations and one analyst (Tien-Tsin Huang at J.P.Morgan) has a “neutral” recommendation.

The firms providing research coverage on the company are as follows in alphabetical order: BMO Capital Markets, CIBC Capital Markets, J.P. Morgan and National Bank Financial.

Scotiabank, Raymond James and TD Securities were also underwriters of the initial public offering. Consequently, it would not surprise me if analysts from these firms also launched coverage on the company in the weeks ahead.

Financial forecasts

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The company is forecast to deliver strong top line growth. The consensus revenue estimates are US$77-million for fiscal 2019 (up from US$57-million reported in fiscal 2018), US$103-million for fiscal 2020, US$153-million for fiscal 2021 and US$230-million for fiscal 2022.

The company is anticipated to be profitable (positive earnings per share) in fiscal 2022.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-sales multiple of 11 times the fiscal 2021 consensus estimate. The shares are trading at an EV/Sales multiple of 7.5 times the fiscal 2022 consensus estimate, which is at a slight discount to its industry peer, Shopify Inc. (SHOP-T).

The average one-year target price for shares of Lightspeed is $25, suggesting the stock price has 5 per cent upside potential over the next 12 months.

Individual target prices are as follows in numerical order: $22 (the low on the Street is from Tien-Tsin Huang, the analyst at J.P.Morgan), two at $25, and $26 (the high on the Street is from Todd Coupland, the analyst at CIBC Capital Markets).

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Chart watch

Shares of Lightspeed just began trading on the Toronto Stock Exchange on March 7. Consequently, there is not enough trading history to provide a technical analysis.

The share price has rallied a staggering 49 per cent from its $16 initial public offering price of $16.

This stock has reasonable liquidity. For instance, on Friday over 300,000 shares traded.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

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Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Positive BreakoutsApril 12 close
ATD-B-TAlimentation Couche-Tard Inc $81.80
ACI-TAltaGas Canada Inc. $19.09
ATA-TATS Automation Tooling Systems Inc $20.57
BTE-TBaytex Energy Corp $2.90
BCE-TBCE Inc $60.51
CNR-TCanadian National Railway Co $121.99
CNQ-TCanadian Natural Resources Ltd $39.76
CP-TCanadian Pacific Railway Ltd $284.71
CJ-TCardinal Energy Ltd $3.43
CSU-TConstellation Software Inc $1,196.45
CPG-TCrescent Point Energy Corp $5.64
CRR-UN-TCrombie Real Estate Investment Trust $14.58
ENB-TEnbridge Inc $49.93
ECA-TEncana Corp $10.08
ERF-TEnerplus Corp $12.21
FSV-TFirstService Corp $119.50
FTS-TFortis Inc $50.00
GIL-TGildan Activewear Inc $49.39
HDI-THardwoods Distribution Inc $13.28
HLF-THigh Liner Foods Inc $8.92
HNL-THorizon North Logistics Inc $2.26
HBM-THudBay Minerals Inc $10.20
H-THydro One Ltd. $21.28
IMO-TImperial Oil Ltd $38.77
IAG-TiA Financial Corporation Inc. $51.81
IPCO-TInternational Petroleum Corp. of Sweden $7.25
MAL-TMagellan Aerospace Corp $18.49
MG-TMagna International Inc $72.16
MFC-TManulife Financial Corp $24.17
MKP-TMCAN Mortgage Corp $16.12
LABS-TMediPharm Labs Corp. $5.24
MEG-TMEG Energy Corp $6.23
NVA-TNuVista Energy Ltd $4.92
PL-TPinnacle Renewable Holdings Inc. $12.77
PIF-TPolaris Infrastructure Inc. $12.31
QBR-B-TQuebecor Inc $33.05
QSR-TRestaurant Brands International Inc $88.78
RY-TRoyal Bank of Canada $104.69
SHOP-TShopify Inc. $286.47
SRX-TStorm Resources Ltd. $2.50
SLF-TSun Life Financial Inc $53.56
SPB-TSuperior Plus Corp $11.79
SGY-TSurge Energy Inc $1.64
TVE-TTamarack Valley Energy Ltd. $2.88
TECK-B-TTeck Resources Ltd $33.63
T-TTELUS Corp $50.02
TGO-TTeraGo Inc. $11.25
TFII-TTFI International Inc. $42.60
TSGI-TThe Stars Group Inc. $25.61
TRI-TThomson Reuters Corp $79.56
TRP-TTransCanada Corp $62.05
TNT-UN-TTrue North Commercial REIT $6.71
TC-TTucows Inc. $118.07
VMD-TViemed Healthcare Inc. $7.43
WCP-TWhitecap Resources Inc $5.76
YGR-TYangarra Resources Ltd. $3.63
Negative Breakouts
ADN-TAcadian Timber Corp $15.75
ATP-TAtlantic Power Corp $3.20
MIC-TGenworth MI Canada Inc $39.88
IMV-TIMV Inc. $4.70
MUX-TMcEwen Mining Inc. $1.83
PGF-TPengrowth Energy Corp $0.52
SMT-TSierra Metals Inc $1.98
SOT-UN-TSlate Office REIT $6.02
STLC-TStelco Holdings Inc. $15.95
TGZ-TTeranga Gold Corp $3.49
TXG-TTorex Gold Resources Inc $13.44
U-TUranium Participation Corp. $4.34

Source: Bloomberg

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