Tuesday, November 27, 2018

A Current AIM Program Small Cap Equity Holding: Lending Tree (TREE) by: Matthew Prinske. "Will the Giving Tree Keep on Giving?"

Lending Tree (TREE, $236): “Will the Giving Tree Keep on Giving?”
By: Matthew Prinske, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Lending Tree (NASDAQ: TREE) Provides online credit-based transaction, offering varying types of loans to the general public.

• Lending Tree Management is focused on growing diverse revenues through marketing and brand name recognition in the consumer sphere.

• The C suite executives believe the industry is just starting to switch to a more online based lending environment.  

• Management has indicated that it will pursue acquisitions that look to grow and diversify the business, a promise they have followed through on this past year.

• Tree has fallen to 41% under the firm’s 52 week high of $404, the company has been fighting back from a poor earnings report in late April.

Key points:

Lending Tree holds a unique position as a brand recognition leader in the online credit marketplace.  The company is well situated to benefit from the increasing shift in consumer sentiment to be more willing to bank online. 

On the 31st of October Lending Tree acquired QuoteWizard.com for $300M in an attempt to grow stockholder value in the long term.  QuoteWizard was one of the largest insurances comparison marketplace, allowing Lending Tree to brand themselves better in the online credit advertising marketplace.

While mortgage loans – A leading source of revenue for Lending Tree – is as cyclical business that concentrates around the spring and summer months, the business will likely see revenue growth slow or even decrease year over year in the winter quarter.  As Interest rates rise the company expects refinances to decrease and for overall traffic to the company website will lead to a slow year over year growth.

What has the stock done lately?

Since reporting earnings on November 1st and announcing the recent purchase of QuoteWizard on October 31st the company’s stock has gone up 18%.  This large bump in price came as the market was correcting and many stock had taken a beating.  The purchase signaled to investors that Lending Tree will continue to be a growth stock that is willing to invest heavy funds to increase their brand.

Past Year Performance: 

TREE is down 30% since January and of 2018.  The firm failed to meet earning expectations in April and has subsequently fallen. The recent acquisition has spurred a run up in the stock in the last three weeks, however the firm has still seen the stock price fall significantly this past year.

Source: FactSet

My Takeaway:

Lending Tree’s persistence on growth in brand recognitions and thus loan growth has been expressed to investors in the firm’s most recent acquisition.  This purchase is likely to see a quick spike in traffic to the cite, and stable long term growth prospects.  The firm is unlikely to be seeing refinances for the next several quarters, and will have to grow revenues in unique and efficient ways.  The outlook for the industry is bright as more people are willing to trust online banking.  It is difficult to call this company a true fallen angel, but it is likely that their P/E ratio will continue to inflate now that management has expressed a clear focus on sustained growth.

Source: FactSet