Would I still buy Life360 shares as they hit all-time highs?

Could this high-flying tech share still be a buy at all-time highs?

| More on:
A happy family of four on holidays stand on a jetty and cheer.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

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.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. 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.

More on Opinions

Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett
Opinions

2 reasons to buy Berkshire Hathaway shares today (and one not to)

Buying Warren Buffett's company isn't the obvious win that it used to be...

Read more »

A customer and shopper at the checkout of a supermarket.
Consumer Staples & Discretionary Shares

Why this could be the best ASX 200 consumer staples stock to buy in May

Here's why I think this stock is a great buying opportunity in May.

Read more »

Person holding Australian dollar notes, symbolising dividends.
Opinions

With $1,000 to invest, should I buy ASX growth stocks or income shares?

Here’s my view on which investment Aussies should look at.

Read more »

Excited woman holding out $100 notes, symbolising dividends.
Dividend Investing

6% yield! I'm eyeing this ASX stock for my retirement portfolio in May

Here's why I love this stock for a retirement portfolio right now.

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Opinions

Down 80% in a year, are Sayona Mining shares now a buy?

With shares down 80% in a year, will I be buying Sayona Mining stock now?

Read more »

a man with a wide, eager smile on his face holds up three fingers.
Opinions

If I were Warren Buffett, I'd buy these 3 ASX shares

These 3 stocks could fit right into Warren Buffett’s portfolio

Read more »

Two men excited to win online bet
Investing Strategies

Invest in quality, not meme stocks

It appears the “meme stock” days are back.

Read more »

Two funeral workers with a laptop surrounded by cofins.
Opinions

3 ASX shares I'd buy for instant diversification

These 3 ASX investments could provide something very different to the ASX 200.

Read more »