Lightspeed Commerce (LSPD.TO) fell 11.7% today after US short seller and investment manager Spruce Point Capital Management issued a scathing report saying the stock could drop between 60% and 80% % long-term.
Tech stocks have been under pressure in recent days, and the report only made matters worse for one of Canada’s tech darlings and top performers on the Toronto Stock Exchange.
Lightspeed, based in Montreal, offers point-of-sale payment solutions. Although it has been in business for 16 years, Spruce Point claims Lightspeed has never been profitable and that Spruce Point has a short position.
Spruce Point says Lightspeed isn’t transparent about competitive pressures or gives investors too little information to understand organic growth. He also accuses Lightspeed of inflating the number of customers.
âWe wonder why Lightspeed reported over 50,000 customers until November 2018 and then stopped disclosing the number of customers to investors when it was released in March 2019?â Spruce Point said in the report.
âIn our view, the company may have moved the customer narrative to locations in an attempt to cover up a significantly inflated customer base or an undisclosed material adverse event involving loss of customers. “
The acquisition of other companies has been part of Lightspeed’s growth. Spruce Point says the wave of acquisitions has been costly and Lightspeed’s revenue reports don’t tell the whole story.
âThey’re really good at PR and say we’re going to acquire this, that, that, but I don’t know if there will be a breaking point where all of these acquisitions don’t work well together. It looks good on paper, but when you get into practice, how is it going to work beyond the numbers on a PR deck? Said Spruce Point.
Spruce Point claims Lightspeed has weak corporate governance, disturbing auditor oversight, and is expensive on a valuation basis as well.
It is not uncommon for high flying stocks to be targets
When a stock has a big run, it’s not uncommon for it to be the target of short sellers.
This is not the first time that a Canadian tech company has been attacked by an American short seller. Shopify (SHOP) and Constellation Software (CSU) were targeted and became the top performers on the TSX after a brief decline.
5i Research has Lightspeed in its portfolio of growth models.
“For a stock that has risen more than 100% in the last six months alone and is trading at a high valuation, stocks like this may attract the attention of short sellers,” said Ryan Modesto, CEO of 5i Research.
âDifferent opinions and viewpoints are what make a deal, but at first glance we’re not sure we see a ‘gun’ in this report. Competition in the space is increasing, but it is a big market and LSPD is moving fast to claim its market share. “
Lightspeed did not respond to a request for comment.
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.
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