Time to Swipe Right On Tinder?

What a dreadful year Match (NASDAQ:MTCH) stock has had, plunging 30.7% year-to-date, a vast underperformance relative to the major market indices, specifically the S&P 500, which is up 14% in the same time period.

What is surprising about the poor share price action is many of the fundamentals look good. That dichotomy between poor technical price action and solid fundamentals is where opportunity often lies because it can mean a company has been sold off too heavily and is undervalued. Is that the case for Match Group?

Is Match a Good Stock to Invest In?

As recently as early November, Wells Fargo reiterated a Buy rating on Match Group with a price target of $57 per share. That kind of conviction in the face of a plummeting share price warrants further investigation. After all, in the first week of November, Match share price plunged by 17% alone.

The obvious answer as to why the share price has fallen off a cliff is that revenue growth has come grinding to an effective halt. Back in 2020 and 2021, year-over-year revenue growth impressed virtually every quarter. Almost every quarterly report was accompanied by a buoyant announcement that numbers were up close to or more than 20% on an annualized basis.

The string of 20%, or thereabouts, gains took a backward step in Q2 2022 when growth of just 12.3% was reported. Not awful, but perhaps a sign of things to come. And indeed it was because over the past five quarters, YoY top line growth has been 1.0%, -2.5%, -1.4%, 4.4% and 8.9% respectively. 

It’s hard to get too excited by a stock when the top line, the most critical line item of all on the income statement, is stagnating. Or is it?

When we look down the profit-and-loss statement, we see operating income roaring higher over the last four quarters, from $106.2 million to $243.7 million, a significant achievement given the slowdown in sales.

Indeed the numbers are so impressive, it suggests management is doing a really solid job of keeping costs under control, which further invites the question of whether Match, in fact, may now be on sale after the price pullback.

Is Match Stock Undervalued?

Match stock is undervalued by 52.9% according to the consensus $44.85 price target of 24 analysts.

Interestingly, Match is also trading at P/E ratio of 15.2x, marginally above the figure Warren Buffett is reported to consider as a line in the sand for prospective purchases. Trading at just 2.4x sales, Match also appears to be trading at a reasonable valuation at this time. 

To confirm the assessments of analysts and the price-to-earnings and price-to-sales ratios that suggest Match is a bargain at present levels, we looked at a discounted cash flow forecast analysis.

A DCF analysis suggests that fair value for Match stock is $44.18 per share at this time, representing upside of 55.3%.

Is It Time to Buy Match?

On a technical basis, specifically using the Relative Strength Index (RSI), Match stock appears to be oversold at this time. 

So too, fundamentally Match appears undervalued by anywhere from 52.9% to 55.3% based on analysts average target or a discounted cash flow forecast, respectively.

To further validate the thesis that Match may be a good buy now, we examined the balance sheet to see if a major debt load was lurking beneath the surface. There again, the numbers look pretty good with cash sitting at $706.9 million against $3.8 billion in long-term debt.

While it would be nice to see a slightly lower debt level, Match has sufficient liquid reserves to more than cover any shorter term obligations. 

Perhaps free cash flow is an issue? Again, we discovered levered FCF for Match is impressive, coming in positive in 11 of the past 12 quarters, and generally around the $200 million mark quarterly.

All in all, Match appears to buy a good stock to buy at this time, and management seems to agree. Earlier this year they authorized a $1.0 billion share repurchase plan.

If anything, the concern around buying Match now stems largely from poor share price momentum that may continue. Short-term, certainly, there are reasons to be concerned, though in the medium-to-longer term shareholders are likely to be rewarded.

Final Thoughts

If you like buying companies with wide economic moats, Match fits the bill, featuring Tinder, OkCupid, Hinge, PlentyOfFish and many more brands under its corporate umbrella. When it comes to online dating market share, Match stands head and shoulders above its peers.

With $2.3 billion of gross profit, a return on common equity of 24.9% and a return on assets of 12.4%, Match has the hallmarks of a financially solid company that will reward committed shareholders. And now trading with a $7.7 billion market capitalization, there appears to be considerable upside potential on the horizon.

Ideally we would like to see its debt levels reduce over the coming quarters, but they are not egregious relative to cash levels. Clearly both insiders and analysts are in agreement that the current share price appears to undervalue the firm. Management has pursued a share buyback plan while analysts have lofty fair value ratings that suggest as much as 52.9% upside.

Looking at the charts now, a compelling case can be made that the recent selloff has been overdone and the balance of risks and rewards favors an entry point.

That leaves one overarching question, which is whether the world of dating will likely contract or expand in the coming year. Arguably, a slowdown in the economy will hurt Match and its subsidiaries. But human nature and behavior is unlikely to change meaningfully and so the odds are Match will be a good fit for investors portfolios that look out a little further in time.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.