Stock markets appear to be getting healthier in hopes the Federal Reserve is just about done raising rates. Insider buying was a little healthier last week than it was the previous week; however, in our opinion, only one company, once again, merited additional review.
Maybe, the possibility of interest rates flattening out could be one of the motivating factors for LendingTree, Incorporated’s (TREE) founder and Chief Executive Officer (CEO) buying stock last week. CEO Douglas Lebda purchased 65,062 TREE shares at $32.03 for a total investment north of $2 million. (1)
LendingTree operates in three segments: Home, Consumer, and Insurance. The Home segment offers purchase mortgage, refinance mortgage, reverse mortgage, and home equity loans; lines of credit; and real estate brokerage services.
The Consumer segment provides credit cards; personal, small business, student, and auto loans; deposit accounts; and other credit products, such as credit repair and debt settlement services.
The Insurance segment includes information, tools, and access to insurance quote products, including home and automobile, through which consumers are matched with insurance lead aggregators to obtain insurance offers.
All three segments are sensitive to interest rates and would likely benefit from a less hostile interest rate environment. LendingTree shareholders benefited in the aftermath of Lebda’s last buy. In May 2016, the founder bought 5,000 shares at $67.67 for $338,350. Seven months later, he sold 4,000 shares at $104.160 for a profit of $36.67 per share and profit of 53.75 percent.
Once he flipped the switch to sell, Lebda sold 81 more times, collecting $240,728,074 all the way, unabated red (sell) tickets until he went blue (buy) for $2 million on Monday, January 23, 2023.
Analysts believe things will get better for the bottom line in fiscal year 2023 (next year). Current consensus earnings per share (EPS) are expected to drop to $0.36 this year from $1.57 last year but bounce back to $1.25 next year. Although the bottom line is expected to come back, the top line is predicted to decline 9.8 percent this year to $991.07 million and flatten out next year, dipping less than 1 percent to $985.62 million. (2)
Compared to its industry, TREE could offer some value on a price to sales (P/S) basis. The average financial company trades at 3.3 times sales versus 0.5 for LendingTree. During the last half-decade, LendingTree’s average P/S ratio was more in line with the industry at 3.25. Since 2018, the financial conglomerate was valued between 0.23 and 6.5 times sales.
If the company delivers on Wall Street’s sales forecast for fiscal year 2023, we calculate the following potential price points:
- Low P/S: $17.72
- Current P/S: $38.53
- Average P/S: $250.62
- High P/S: $500.90
Wall Street pegged a 12-month price target of $41.56. TREE trades at $38.32 as we type and does not pay a dividend.
OVERALL: LendingTree, Incorporated’s (TREE) could offer shareholders more upside than downside according to the company’s recent price to sales history. Although CEO Douglas Lebda is primarily a seller, he was on the right side of the trade the last time he bought.
If the Federal Reserve is on the verge of halting rate hikes, interest rate sensitive companies could perform and recover from losses.
With a beta of 1.65 (S&P 500 beta of 1), TREE is only appropriate for investors with an above-average risk tolerance and at least a two-year time horizon.
1 – https://www.secform4.com/insider-trading/1107090.htm
2 – https://finance.yahoo.com/quote/TREE/analysis?p=TREE