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.
Summary:
• 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
