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.

Created with Highcharts 11.4.3Life360 PriceZoom1M3M6MYTD1Y5Y10YALL2 May 20233 May 2024Zoom ▾Jul '23Sep '23Nov '23Jan '24Mar '24May '24Jul '23Jul '23Oct '23Oct '23Jan '24Jan '24Apr '24Apr '24www.fool.com.au

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

Happy miner giving ok sign in front of a mine.
Opinions

Which ASX 200 stock offers 'material upside' amid continuing uncertainty over US tariffs?

Blackwattle Investment has identified one ASX 200 large-cap stock that is thriving on the uncertainty.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Financial Shares

2 rising ASX financial shares with 'meaningful upside' still left: fundie

Financials outperformed every other sector in FY25, but there are still buying opportunities left, say these experts.

Read more »

A businessman hugs his computer and smiles.
Opinions

If I could only own one ASX 200 share for the rest of my life, it'd be this one

This is one stock I expect to own forever.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Brokers rerate 3 leading ASX 200 tech stocks

Experts reveal their ratings on the ASX 200 tech sector's three biggest companies.

Read more »

Person holding a blue chip.
Opinions

Buy alert! 2 ASX 200 blue-chip shares worth a look now: expert

Dylan Evans from Catapult Wealth has identified two blue-chip shares that he thinks are good buys today.

Read more »

Two happy woman on a couch looking at a tablet.
Opinions

Why I'm excited to see the results of these ASX 200 shares

These stocks could reveal very interesting insights.

Read more »

Young male investor smiling looking at laptop as the share price of ASX ETF CRYP goes higher today
Opinions

Why I just bought this 5.2%-yielding ASX dividend stock and plan to buy even more

This business is one of my favourites for dividends and total returns.

Read more »

A young female investor with brown curly hair and wearing a yellow top and glasses sits at her desk using her calculator to work out how much her ASX dividend shares will pay this year
Opinions

Why I'm still investing in ASX shares during tariff uncertainty

There are a few reasons why I plan to continue investing even during uncertainty.

Read more »