Down 49% so far this year, has the Life360 share price been massively oversold?

The Life360 Inc (ASX: 360) share price slid further into the red on Monday.

At market close, shares in the family safety tech company are 4.87% lower to $4.88. With no company announcements out today, it’s fair to say the disappointing move was likely tied to Life360’s planned removal from the S&P/ASX 200 Index (ASX: XJO) in the upcoming September quarterly rebalance.

The decision to oust Life360 from the benchmark follows a painful 49% fall since the beginning of the year. Unfortunately for shareholders, a 40% underperformance of the Aussie index was terrible enough to receive the boot.

However, could the Life360 share price now represent value?

A diamond in the rough

There’s no sugarcoating it — Life360 is not profitable… and by a fair margin at that. According to its recent half-year report, the company made a $58.2 million net loss on the bottom line.

That is not a result investors like to see. Especially in an environment where capital costs are increasing due to interest rates. Although, one fund manager is willing to forgive Life360’s lack of fruitful profits, thanks to its potential to be a market leader.

Discovery Funds portfolio manager Chris Bainbridge named Life360 as one company the fund was keen on. Furthermore, Bainbridge discussed his belief that the unravelling of valuations across ASX-listed tech shares was a net positive, stating:

We believe this correction is one of the best things that could have happened for a number of tech companies because it enforces a financial discipline that hasn’t been there for the last few years. There are now depressed valuations for companies with demonstrably better earnings than anyone was projecting six months ago, and that’s something the market is missing.

In terms of profitability, Life360 is forecast to become earnings before interest, tax, depreciation, and amortisation (EBITDA) positive toward the end of 2023. Though, it is Bainbridge’s belief in Life360’s potentially market-leading position that has excited.

How the Life360 share price compares

The unprofitable nature of the company means we can’t use a traditional price-to-earnings (P/E) ratio for peer comparisons. In its place, let’s take a look at how the Life360 share price stacks up using the price-to-sales (P/S) ratio.

At a P/S ratio of around 4 times, Life360 is roughly on par with other ASX-listed software companies. For example, Hansen Technologies Limited (ASX: HSN) trades at 3.2 times. Whereas, Nitro Software Ltd (ASX: NTO) is fetching 4.5 times.

The post Down 49% so far this year, has the Life360 share price been massively oversold? appeared first on The Motley Fool Australia.

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• Zip and these shares have been kicked out of the ASX 200 index
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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 Hansen Technologies and Life360, Inc. The Motley Fool Australia has recommended Nitro Software Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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