Would I still buy Life360 shares as they hit all-time highs?
A happy family of four on holidays stand on a jetty and cheer.
Life360 Inc (ASX: 360) shares are on fire this year!
The family safety app maker is the best-performing stock inside the S&P/ASX 200 Index (ASX: XJO) by a mile, rallying 97% since the end of last year. Trailing in its dust are Alumina Ltd (ASX: AWC) and Paladin Energy Ltd (ASX: PDN), with gains of 67% and 49%.
Today, the United States-based tech company laying down fresh highs. Life360 shares are now swapping hands at $14.72. That means the location-sharing app company is now up 197% from a year ago, as shown below.
Does that mean Life360 shares are now too expensive to buy now? Well, here’s my take.
Still early days?
Human psychology is a funny thing. We often naturally assume that a company trading at record prices is expensive or has poor value. We’re biologically programmed to favour beaten-down stocks.
Our prehistoric brains think the perceived value of a company far below its former price presents better odds for a big return than a quality company at all-time highs. However, a company’s share price has no bearing on its future performance.
Investors are better served by considering where the business will be in years to come — bigger or smaller?
That’s the lens I look at Life360 shares through.
Life360 sells a subscription to families who value safety. Those who want peace of mind. There were 127 million households in the United States at last count, which we can use as a proxy for the number of families.
In FY23, Life360 clocked 1.8 million paying circles, contributing to its US$304.5 million in annual revenue. According to Pew Research, approximately 70% of adults in the US are in the middle or upper classes — constituting potential Life360 customers.
Based on these numbers, I think the company could reach around 30 million paying circles in the years to come. This is especially true when this is a global business with customers across Canada, the United Kingdom, and Australia.
That’s potentially 16 times the number of paying circles.
Where I see Life360 shares years from now
If I were to do some crude math and multiply current revenue by 16, that’s roughly US$5 billion in possible revenue.
I’d estimate a 15% net margin is feasible, which would mean US$750 million in net profits after tax (NPAT).
Throw a 20 times price-to-earnings (P/E) ratio on it, and we’re looking at something that might be worth A$22.8 billion. Yes, that’s right… I believe Life360 shares have a chance at being a seven-bagger from here.
There are two caveats, though.
One: The potential number of families interested in paying for Life360 could be far less.
Two: It could take a decade or more to grow to 30 million paying circles.
However, those are two caveats I’d be willing to live with for potentially multi-bagger returns.
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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Life360. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.