This ASX 200 tech share is 'materially undervalued': Goldman Sachs

Goldman Sachs believes the market has got it wrong with this tech share.

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Key points
  • The tech sector has been under pressure again in 2023
  • This has dragged many tech shares meaningfully lower
  • Goldman Sachs believes this ASX 200 tech share is a bit of a bargain at current levels

While recent weakness in the tech sector has been disappointing, it could have created some excellent buying opportunities for investors.

With that in mind, one of the biggest bargains in the sector right now could be Life360 Inc (ASX: 360) shares.

The location technology company, which joins the ASX 200 index on Monday, has been labelled as 'materially undervalued' by analysts at Goldman Sachs this morning.

Happy man and woman looking at the share price on a tablet.

Image source: Getty Images

A dirt cheap ASX 200 tech share

Ahead of the release of the company's quarterly update later this week, Goldman has reiterated its buy rating and $7.90 price target on the tech share.

Based on the current Life360 share price of $5.17, this implies potential upside of almost 53% for investors over the next 12 months.

Goldman believes its shares are undervalued based on the resilience of its business model and its strong growth outlook. It commented:

We continue to believe Life360 is being materially undervalued given its 1) resilient business model which has so far weathered the headwinds of price rises and macroeconomic turbulence; 2) upcoming shift from the pre-profit to profitable tech basket in 2Q23; 3) high growth profile, as implied by its +35% y/y revenue guidance and ongoing momentum from price increases; and 4) sound balance sheet and earnings outlook.

In addition, the broker notes that the way Life360 does its accounting differs from other ASX 200 tech shares. However, if you adjust for this, it would actually be profitable already and be looking extremely cheap compared to peers. It explains:

Life360 expenses all of its R&D; if the company capitalised 50% of R&D (same as TNE/XRO/WTC and other tech peers), we estimate the business would already be profitable in 2H22 and only trade on 10/15x FY24E EV/EBITDA (pre/post stock based comp), while growing the top-line at ~30% FY22-24E CAGR.

All in all, Goldman believes this makes Life360 an ASX 200 tech share to buy now.

Motley Fool contributor James Mickleboro has positions in Life360. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Life360. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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