Hi Doug,
We weren't all that familiar with TREE in the US so had to do a little digging. While the stock is on a downtrend and trading at a steep discount to analysts estimates ($280) its not exactly cheap. It is trading at 30 times forward earnings and 4.5 times book value - both of which far exceed industry averages.
It also appears the reason for the downtrend is slowing growth. Much like REAL - the company is likely to be impacted by higher interest rates which will likely lead to lower re-financings and margins in the home segment. While the consumer segment is likely to pick up some of the slack as post-covid approvals rebound, it is not expected to make up the difference.
So what it boils down to is how the company will fare in a rising interest environment. It was trading at very high multiples given its growth rates, but if higher interest rates eat into these growth rates than it is likely these higher multiples are not justified. There is a lot of uncertainty here. Here is the statement right from their financials:
"Interest rate and market risks can be substantial in the mortgage lead generation business. Short-term fluctuations in mortgage interest rates primarily affect consumer demand for mortgage refinancings, while long-term fluctuations in mortgage interest rates, coupled with the U.S. real estate market, affect consumer demand for new mortgages. Consumer demand, in turn, affects lender demand for mortgage leads from third-party sources, as well as our own ability to attract online consumers to our website."
"Typically, as mortgage interest rates rise, there are fewer consumers in the marketplace seeking refinancings and, accordingly, the mix of mortgage origination dollars will move toward purchase mortgages."
Combined this headwind with high valuations to begin with, and you start to understand why it has been trending downwards. The one thing to remember about analysts estimates is at times, they tend to lag what is happening with the share price. Over the past 30-days, EBITDA estimates have been revised lowed by 10%. Time will tell how it handles rising rates, but that is where the crux of the risk is currently.
Mat