A victim of today's afternoon session is Bumble, an online dating company whose shares are down -10.0%, underperforming the Nasdaq by -8.0%. At $28.27, the stock is -18.27% below its average analyst target price of $34.59 which indicates some measure of upside potential. Indeed, the average analyst rating for the stock is buy. BMBL has lagged behind the S&P 500 index by - 31.4% over the last year, returning only -34.9%.
Bumble is a technology company. The tech sector encompasses a wide range of industries such as computer software, computer hardware, semiconductors, scientific instruments, communications equipment, and consumer electronics. Despite the sector’s spectacular boom and bust at the turn of the century, investors still flock to tech companies in the hopes of capturing gains.
Valuations in the technology sector are often very high, as investors are willing to overlook gaps in the fundamentals if they believe a company’s innovations can dominate or create new markets. Despite the significant risks involved, just about everyone from professional portfolio managers to amateur investors consider technology companies such as Meta, Apple, Google, and Microsoft as “safe” bets.
As of the second quarter of 2022, the average Price to Earnings (P/E) ratio of US technology companies is 20.64, and the S&P 500 average is 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (Eps), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
Bumble does not release its trailing 12 month P/E ratio since its earnings per share of $-0.07 were\e negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for BMBL of -398.2. Based on the company's positive earnings guidance of $0.33, the stock has a forward P/E ratio of 85.7.
Contrasted with earnings, gross profits margins are caclulated on the basis of the company's cost of goods sold (i.e. cost of labor and materials only) subtracted from sales revenues. The extent of gross profit margins implies how much freedom the company has in setting the prices of its products. A wider gross profit margin indicates that a company may have a competitive advantage, as it is free to keep its product prices high relative to their cost. In BMBL's case, the gross profit margins are 72.5%, which indicates that it potentially benefits from a sustained competitive advantage over its peers, allowing it to maintain highly profitable pricing structures.
Companies have many other costs and sources of income occurring outside of their core business. Everything from equipment depreciation, returns on capital investments, legal costs, income from intellectual property, and interest payments on debt factor into the company's ultimate profitability. We can see the effect of these additional factors in Bumble 's levered free cash flow of $290,392,256. This represents the amount of money that is available for reinvesting in the business, or paying out to investors in the form of a dividend. With a positive cash flow, BMBL is in a position to do either -- which can encourage more investors to place their capital in the company.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if sold all of its assets and payed off all debts. As of the second quarter of 2022, the average P/B ratio for technology companies is 5.39. In contrast, the average P/B ratio of the S&P 500 is 2.95. Bumble 's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 2, but is still below the average P/B ratio of the Technology sector.
As of second quarter of 2022, Bumble is likely an fairly valued stock. It's earnings picture is worrisome with its negative earnings per share, but it has a lower than average P/B ratio, excellent profit margins, an analyst consensus of some upside potential, and strong cash flows. We encourage you to do your own research into BMBL's fundamental values -- especially their trends over time. If you enjoyed this analysis, please subscribe to our free newsletter for more like it!