Life360 Inc (ASX: 360) shares are on fire this year!
The family safety app maker is the best-performing stock inside the S&P/ASX 200 Index (ASX: XJO) by a mile, rallying 97% since the end of last year. Trailing in its dust are Alumina Ltd (ASX: AWC) and Paladin Energy Ltd (ASX: PDN), with gains of 67% and 49%.
Today, the United States-based tech company laying down fresh highs. Life360 shares are now swapping hands at $14.72. That means the location-sharing app company is now up 197% from a year ago, as shown below.
Does that mean Life360 shares are now too expensive to buy now? Well, here's my take.
Image source: Getty Images
Still early days?
Human psychology is a funny thing. We often naturally assume that a company trading at record prices is expensive or has poor value. We're biologically programmed to favour beaten-down stocks.
Our prehistoric brains think the perceived value of a company far below its former price presents better odds for a big return than a quality company at all-time highs. However, a company's share price has no bearing on its future performance.
Investors are better served by considering where the business will be in years to come — bigger or smaller?
That's the lens I look at Life360 shares through.
Life360 sells a subscription to families who value safety. Those who want peace of mind. There were 127 million households in the United States at last count, which we can use as a proxy for the number of families.
In FY23, Life360 clocked 1.8 million paying circles, contributing to its US$304.5 million in annual revenue. According to Pew Research, approximately 70% of adults in the US are in the middle or upper classes — constituting potential Life360 customers.
Based on these numbers, I think the company could reach around 30 million paying circles in the years to come. This is especially true when this is a global business with customers across Canada, the United Kingdom, and Australia.
That's potentially 16 times the number of paying circles.
Where I see Life360 shares years from now
If I were to do some crude math and multiply current revenue by 16, that's roughly US$5 billion in possible revenue.
I'd estimate a 15% net margin is feasible, which would mean US$750 million in net profits after tax (NPAT).
Throw a 20 times price-to-earnings (P/E) ratio on it, and we're looking at something that might be worth A$22.8 billion. Yes, that's right… I believe Life360 shares have a chance at being a seven-bagger from here.
There are two caveats, though.
One: The potential number of families interested in paying for Life360 could be far less.
Two: It could take a decade or more to grow to 30 million paying circles.
However, those are two caveats I'd be willing to live with for potentially multi-bagger returns.
