Shares in American information technology company Life360 Inc (ASX: 360) are inching lower today and now trade $13.48 apiece.
Zooming out and scoping a wider time frame, we see Life360 shareholders won't be too worried about today's 1.5% dip into the red.
The Life360 share price bounced off a low of $8.12 on 6 October and has soared to a high of $13.39 after rallying as much as 67% in that time.
With these results, the team at securities firm Bell Potter has chimed in with its opinion on the outlook for Life360 shareholders.
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Is the Life360 share price cheap?
Bell Potter reckons that it could be, and compares it to social networking service app Nextdoor Holdings Inc (NYSE: KIND).
The broker reckons Life360 is a better quality company than Nextdoor, even if the latter is trading at a higher sales multiple.
Whereas Life360 generates the bulk of its revenue through subscription, Nextdoor derives most of its sales via advertising, according to Bell Potter.
Yet, Nextdoor trades at around 23x revenue when looking at the middle of its FY21 guidance. Meanwhile, Like360 is valued at around 13x the broker's FY21 sales estimates.
This, Bell Potter says, makes Life360 look cheap, especially on a comparable basis. Why is this so?
Investing hall-of-famer Peter Lynch explains it well. He states that one advantage of using earnings multiples – like price-to-earnings for example – is to see a share's relative 'cheapness'.
We aren't talking price here. As fellow investing great Warrent Buffet said – price is what you pay, and value is what you get.
Analysts use these ratios, which are usually calculated from market data and a company's financial statements, to assess value, according to Lynch.
And after completing its own analysis, Bell Potter reckons that there is potential for Life360 shares to continue gaining ground.
It retained its buy rating on the share and lifted its price target by 18% to $14.75. At the time of writing, that implies an upside potential of over 10%.
Life360 share price snapshot
The Life360 share price has soared over the last 12 months and posted a return of 285% in that time. This year it has rallied a further 255% and has gained 46% in the last month alone.
Each of these returns is a galaxy ahead of the benchmark S&P/ASX 200 Index (ASX: XJO)'s climb of around 14% in the past year.
