LendingTree has had an impressive run over the past six months as its shares have beaten the S&P 500 by 27.4%. The stock now trades at $53.29, marking a 38.9% gain. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy LendingTree, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.
Why Do We Think LendingTree Will Underperform?
We’re glad investors have benefited from the price increase, but we're swiping left on LendingTree for now. Here are three reasons there are better opportunities than TREE and a stock we'd rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, LendingTree struggled to consistently increase demand as its $1.06 billion of sales for the trailing 12 months was close to its revenue three years ago. This was below our standards and is a sign of poor business quality.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect LendingTree’s revenue to rise by 8.5%. While this projection indicates its newer products and services will spur better top-line performance, it is still below average for the sector.
3. Poor Marketing Efficiency Drains Profits
Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like LendingTree grow from a combination of product virality, paid advertisement, and incentives.
It’s very expensive for LendingTree to acquire new users as the company has spent 74.6% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates a highly competitive environment with little differentiation between LendingTree and its peers.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of LendingTree, we’ll be cheering from the sidelines. With its shares topping the market in recent months, the stock trades at 7.8× forward EV/EBITDA (or $53.29 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d suggest looking at one of our top software and edge computing picks.
Stocks We Would Buy Instead of LendingTree
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