Life360 Inc. (ASX: 360) shares have been having a tough year.
Despite delivering strong growth across key metrics, the location technology company's shares are down almost 40% since the start of the year.
While that is disappointing, Bell Potter thinks it could be a compelling buying opportunity for investors.
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What is the broker saying?
Bell Potter highlights that EBITDA margin expectations are already low for the third quarter of FY 2026 due to increased marketing spend.
The good news is the broker believes Life360 will achieve what is expected and even sees scope for it to exceed expectations. It said:
Life360 has already set the bar relatively low for 3Q2026 by flagging an adjusted EBITDA margin of around 18% which compares to 20% in the pcp and also the previous quarter. The reason for the lower margin is flagged higher marketing spend during the quarter and also the lack of a tariff refund which was received in 2Q2026.
The likely decrease in margin is, therefore, nothing untoward and looks to be reasonably well anticipated with a VA consensus forecast of c.19%. We ourselves forecast a margin of 18.3% in Q3 and expect our forecast to at least be met if not exceeded. We note that the company guided to a low double digit adjusted EBITDA margin in 1Q2026 – which was later clarified as being close to 10% – and then reported a margin of 12% so the company has some form in guiding to a certain level and then slightly exceeding it.
And while the broker doesn't expect a guidance upgrade with the results, it believes there is potential for user growth to be on track to achieve guidance in FY 2026. It adds:
Given the anticipated slightly weak adjusted EBITDA margin in Q3 we do not expect any upgrade to the 2026 guidance when the quarterly is released on 10th November and this perhaps partly or largely explains the weakness in the share price since the release of the Q2 result in August. But in the absence of any upgrade there may still be some positives such as MAU growth >5m and/or paying circle growth around 200k in Q3 which would increase the likelihood that at least the low end of the 17-20% MAU growth guidance range can be achieved.
Time to buy Life360 shares?
According to the note, Bell Potter has retained its buy rating on Life360 shares with a trimmed price target of $32.00 (from $33.00).
Based on its current share price of $20.34, this implies potential upside of 57% for investors over the next 12 months.
Commenting on its recommendation, Bell Potter said:
We have reduced the multiple we apply in our EV/EBITDA valuation from 25x to 22.5x due to the continued weakness in software and app stocks both domestically and offshore. We have also increased the WACC we apply in the DCF from 9.5% to 9.7% due to an increase in the risk-free rate from 4.5% to 4.75%.
The net result is a 6% decrease in our TP to $32.00 which is still a material premium to the share price so we maintain our BUY recommendation. The upcoming quarterly result next month may well prove to be some sort of catalyst, more so because expectations are already low rather than anticipating any sort of material beat or upgrade to guidance.
