Is Life360's soaring share price still 20% undervalued?

Here's what one leading broker is saying about this hot stock.

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It is fair to say that the Life360 Inc (ASX: 360) share price has been on fire in 2024.

Since the start of the year, the location technology company's shares are up 81%.

This means that a $20,000 investment at the end of last year would now be worth just over $36,000.

Investors have been scrambling to buy Life360's shares for a number of reasons. This includes a stellar full-year result in March, the launch of an advertising business, and a trading update last week which revealed a record first-quarter performance.

In light of these strong gains, investors may think that the Life360 share price is overvalued now. But could it actually be the opposite? Let's now see what one leading broker is saying about the tech stock.

Is the Life360 share price undervalued?

According to a note out of Bell Potter, its analysts still see plenty of value in the company's shares following its trading update this month. Commenting on the update, the broker said:

Life360 provided a positive and unexpected market update with two key metrics in 1Q2024 materially exceeding both our and market expectations: 1. Global monthly active users increased 4.9m to 66.4m (vs BPe 2.6m increase to 64.0m); and 2. Global paying circles increased 96k to 1.897m (vs BPe 66k increase to 1.867m). No explanation or commentary was provided as to what drove the strong growth and the company said it was too early to determine whether these metrics will have a material positive impact on revenue, earnings or any other financial results for 1Q2024.

Both metrics are clearly very strong but in our view the growth in paying circles is key as this metric disappointed somewhat in 4Q2023 with an increase of only 55k – albeit after very strong growth in 3Q2023 – so growth of 96k in 1Q2024 signals a strong rebound.

In response, the broker retained its buy rating with an improved price target of $16.25.

Based on the current Life360 share price, this suggests that its shares could rise almost 20% over the next 12 months. It concludes:

We have updated each valuation used in the determination of our price target for the forecast changes and also increased the multiple we apply in the EV/Revenue valuation from 4.75x to 5.5x due to the positive update and also successful IPO of Reddit on the NYSE. The net result is a 12% increase in our PT to $16.25.

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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