Should you sell Lightspeed POS shares as Spruce Point Capital calls 80% downside?

On Wednesday, Lightspeed POS Inc. (NYSE:LSPD) shares fell by more than 10% after Spruce Point Capital warned investors its addressable market could be substantially inflated. The firm also said LSPD’s customer counts and gross transaction volume may be overstated.

Spruce Point also thinks Lightspeed POS could be using acquisitions as cover for increasing competition and double-digit organic declines. It points to employee interviews, which indicate the company’s average revenue per user (ARPU) could be declining, as not all acquisitions have been successful.

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In a note to investors, Spruce Point Capital wrote:

LSPD baits investors with its massive potential in its payments solution, but we believe it has not been transparent about competitive pressures and material margin decline.

In addition, the firm said it does not fancy Lightspeed’s chances against the likes of Shopify Inc. (NYSE:SHOP) and Amazon.com Inc. (NASDAQ:AMZN), thereby adding pressure to LSPD’s stock price amid a steep P/S multiple.

Time to cash out?

From an investment perspective, Lightspeed shares seem to be trading at steep valuation multiples, making the stock less attractive to investors. Moreover, with analysts expecting the bottom line to decline by nearly 90% this year, the company’s growth prospects also look less compelling.

Therefore, with Spruce Point Capital warning investors about LSPD potentially lacking transparency in its reporting, it could be time to cash out. 

The pullback could continue

Technically, although Lightspeed POS shares plunged significantly in recent trading sessions, the stock price is yet to reach oversold conditions, thereby leaving room for more downward movement. 

Therefore, investors could target extended declines at about $90.47 or lower at $76.43. On the other hand, if the stock performs an unexpected recovery, it could find resistance at $109.38 or higher at $126.56.

It is not too late to sell

In summary, although LSPD shares have plunged more than 16% over the last four trading sessions, the stock is still up nearly 50% this year. Therefore, the company is massively outperforming the S&P 500 Index, which is up about 18% over the same period.

And given Spruce Point Capital’s report, the LSPD stock could experience more downward pressure for the foreseeable future. Therefore, it may be best to cash out before the stock declines further.

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