There is an ASX share that is looking ready to break out as the world moves to a post-COVID and post-vaccination lifestyle.
Watermark Funds Management portfolio manager Harry Dudley reckons technology company Life360 Inc (ASX: 360) had a troubled first 18 months of its listed life.
“The company was listed at $4.79 and after some short-lived fanfare, it continued to trade under its IPO price for nearly two years, only passing it back in March,” he posted on Livewire.
“It’s now nearly doubled this hurdle in the past 3 months.”
Life360 is an app that allows parents to track their children’s mobile phone movements. The predominant market is the US.
Some famous personalities have recently joined the shareholder register.
“Names included Vanessa Bryant (wife of the late Kobe Bryant), Tony Hawk (professional skateboarder), Nicole and Michael Phelps (Olympic swimmer),” said Dudley.
“They have agreed to also establish an advisory council to execute on the product and marketing strategy.”
Why was the Life360 share price in the doldrums?
As well as the impact of the coronavirus pandemic, the stock price went nowhere until March this year because of a misconception, according to Dudley.
“We think the key misunderstanding from Australian investors was that phone-based Apps have high churn rates,” he said.
“We are normally accustomed to sticky software-as-a-service (SaaS) companies such as Xero Limited (ASX: XRO) and Wisetech Global Ltd (ASX: WTC).”
However, despite a 20% revenue hit during calendar year 2020 due to COVID-19, the company is showing industry-leading growth.
“360 has grown annualised recurring revenue (ARR) from $45 million when it listed in 2018 to more than $120 million, as guided by management, for this calendar year. This is a 3-year compounded rate of 38%,” said Dudley.
“It is the clear category leader. These kinds of growth rates from a market leader give us confidence that 360 will assert dominance in the family location market.”
Share price has rocketed but it’s not expensive yet
The Life360 share price has zoomed up more than 112% this year, to trade Thursday afternoon at $8.25.
Despite this ballooning valuation, Dudley thinks it’s still a value buy.
“It still trades on a relatively cheap 6-times price-to-sales multiple. This compares favourably to Bumble Inc (NASDAQ: BMBL), its closest peer in the US, which trades on an 11-times price-to-sales metric,” he said.
“With forecast growth that outstrips that of Bumble, we think 360 is only beginning its re-rate.”
Life360’s leadership have previously flagged their plan to eventually list on the NASDAQ, which Dudley would consider another upward catalyst.
Watermark is not the only fan of the app provider, with Bell Potter only last month including it as one of the tech stocks to buy this year.
Its price target of $7 is already history.
More recently, Credit Suisse this week rated Life360 as “outperform” while slapping a price target of $10.