LendingTree Stock Gives Every Indication Of Being Significantly Undervalued

GuruFocus.com
·4 min read

- By GF Value

The stock of LendingTree (NAS:TREE, 30-year Financials) is estimated to be significantly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $191.45 per share and the market cap of $2.5 billion, LendingTree stock gives every indication of being significantly undervalued. GF Value for LendingTree is shown in the chart below.


LendingTree Stock Gives Every Indication Of Being Significantly Undervalued
LendingTree Stock Gives Every Indication Of Being Significantly Undervalued

Because LendingTree is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth, which averaged 15.7% over the past three years and is estimated to grow 5.52% annually over the next three to five years.

Link: These companies may deliever higher future returns at reduced risk.

Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. LendingTree has a cash-to-debt ratio of 0.23, which which ranks worse than 89% of the companies in Banks industry. The overall financial strength of LendingTree is 3 out of 10, which indicates that the financial strength of LendingTree is poor. This is the debt and cash of LendingTree over the past years:

LendingTree Stock Gives Every Indication Of Being Significantly Undervalued
LendingTree Stock Gives Every Indication Of Being Significantly Undervalued

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. LendingTree has been profitable 8 years over the past 10 years. During the past 12 months, the company had revenues of $899.7 million and loss of $3.46 a share. Its operating margin of -1.79% worse than 76% of the companies in Banks industry. Overall, GuruFocus ranks LendingTree's profitability as fair. This is the revenue and net income of LendingTree over the past years:

LendingTree Stock Gives Every Indication Of Being Significantly Undervalued
LendingTree Stock Gives Every Indication Of Being Significantly Undervalued

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of LendingTree is 15.7%, which ranks better than 89% of the companies in Banks industry. The 3-year average EBITDA growth rate is 5.8%, which ranks in the middle range of the companies in Banks industry.

Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, LendingTree's return on invested capital is -1.16, and its cost of capital is 9.19. The historical ROIC vs WACC comparison of LendingTree is shown below:

LendingTree Stock Gives Every Indication Of Being Significantly Undervalued
LendingTree Stock Gives Every Indication Of Being Significantly Undervalued

In conclusion, LendingTree (NAS:TREE, 30-year Financials) stock appears to be significantly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Banks industry. To learn more about LendingTree stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.