Over the past six months, LendingTree’s stock price fell to $47.53. Shareholders have lost 14.1% of their capital, which is disappointing considering the S&P 500 has climbed by 6.6%. This might have investors contemplating their next move.
Is there a buying opportunity in LendingTree, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think LendingTree Will Underperform?
Despite the more favorable entry price, we're cautious about LendingTree. Here are three reasons you should be careful with TREE and a stock we'd rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow 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%. Although this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average.
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 74.4% 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 see the value of companies helping consumers, but in the case of LendingTree, we’re out. After the recent drawdown, the stock trades at 6.7× forward EV/EBITDA (or $47.53 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. We’d recommend looking at one of our top software and edge computing picks.
Stocks We Like More Than LendingTree
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