Life360 Inc (ASX: 360) shares have pulled back significantly from their highs this year.
While this is disappointing, it could have created a compelling buying opportunity for investors looking for some exposure to the tech sector.
Bell Potter certainly thinks that is the case. It believes the company's shares could be materially undervalued at current levels.
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What is the broker saying?
Bell Potter has been looking over the company's first-quarter update.
It notes that while the market focused on one key negative, which was explainable, it thinks the attention should have been on the positives. It said:
The 1Q2026 result of Life360 was very good in our view but the market focused on the one key negative – relatively low global MAU growth. This was, however, largely explained (i.e. technical issues) and looks set to rebound strongly over the next three quarters. The market seemed to ignore most or all of the positives (e.g. guidance upgrade) and one in particular – very strong paying circle growth (201k vs BPe 99k).
The reason for the strong growth was perhaps not well explained but we believe was largely due to better quality MAUs and the company now using AI in A/B testing to help optimise marketing and subscription plans. Both of these helped drive much better conversion rates in Q1 and we believe this will continue in subsequent quarters though the rates may drop below Q1 as MAU growth rebounds and the quality drops. So, in short, we expect similarly strong paying circle growth in each of Q2, Q3 and Q4 and, given this is the key driver of revenue growth, we believe market focus will shift to this positive rather than the negative of any weakness in MAU growth.
Should you buy Life360 shares?
According to the note, Bell Potter believes Life360 shares could deliver big returns for investors over the next 12 months.
After reviewing its results, the broker has retained its buy rating with an improved price target of $33.00 (from $32.50).
Based on its current share price of $18.81, this implies potential upside of 75% for investors over the next 12 months.
Speaking about its investment thesis, Bell Potter said:
There are no changes in the key assumptions we apply in the two valuations we use to determine our price target – a 30x multiple in the EV/EBITDA and a 9.6% WACC in the DCF. The modest upgrades to our forecasts, however, have driven a 2% increase in our TP to $33.00 and we retain the BUY recommendation. Key focus for us is the Q2/H1 result in August and, firstly, a strong rebound in MAU growth but secondly, and more importantly, another quarter of strong paying circle growth where anything approaching or up around 200k again would be bullish in our view.
