Over the last six months, MediaAlpha’s shares have sunk to $9, producing a disappointing 11.2% loss - a stark contrast to the S&P 500’s 9.8% gain. This may have investors wondering how to approach the situation.
Given the weaker price action, is now a good time to buy MAX? Find out in our full research report, it’s free.
Why Is MAX a Good Business?
Powering nearly 10 million consumer referrals each month in the insurance marketplace, MediaAlpha (NYSE:MAX) operates a technology platform that connects insurance carriers with high-intent consumers shopping for property, casualty, health, and life insurance products.
1. Skyrocketing Revenue Shows Strong Momentum
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, MediaAlpha’s 16.6% annualized revenue growth over the last five years was incredible. Its growth beat the average business services company and shows its offerings resonate with customers.
2. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, MediaAlpha’s margin expanded by 5.1 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell. MediaAlpha’s free cash flow margin for the trailing 12 months was 7.8%.
3. New Investments Bear Fruit as ROIC Jumps
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. MediaAlpha’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.
Final Judgment
These are just a few reasons why MediaAlpha is a cream-of-the-crop business services company. With the recent decline, the stock trades at 7.7× forward P/E (or $9 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.
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