Since my last article on LendingTree (NASDAQ:TREE) stock, the sell-off has continued. Shares in the online home loan, personal loan, and insurance consumer platform operator have once again hit a new 52-week low. This is not surprising. Interest rates keep rising and are expected to stay at elevated. This is having a tremendous impact on LendingTree’s fiscal performance.
That said, after nearly halving in price over the past twelve months, and trading at a small fraction of what it traded for at the height of the post-Covid housing bubble, the downside from here may be minimal. If you’re banking on a swift recovery, think otherwise. Read on, as I explain why lackluster performance is likely to continue, and there’s little reason to buy this stock, even as a turnaround play.
TREE Stock: The Dust May Settle Post-Earnings
Plenty of contrarian investors have sustained big losses trying to call a bottom with LendingTree shares. I’m not looking to call a bottom myself. However, I’ll admit it’s possible that the dust could soon settle.
The next big event for TREE stock is less than a week away. Pre-market on Oct. 31, the company will report its results for the quarter ending Sept. 30. Following LendingTree’s last earnings release back in July, the company reported stronger-than-expected earnings, but a cut to guidance led to investors responding negatively to the release.
A similar scenario could play out following the forthcoming Q3 earnings release, if the company’s updates yet again fall short of the market’s expectations. Following such a plunge, the bottom-fishers and contrarians could re-emerge, helping to provide support. Even if guidance is unchanged, and/or LendingTree again reports “less bad” quarterly numbers, I wouldn’t count on investors being jubilant about such news.
According to Ritholtz Wealth Management’s Josh Brown (in an interview on CNBC), this earnings season, while stocks missing on earnings have been punished, stocks beating on earnings have not been rewarded. Hence, irrespective of the results, or the updates to guidance, this stock could find a floor post-earnings.
Still Not a Sign to Buy
If you are mulling a purchase of TREE stock, whether now or after the next round of weakness, I would assume you are maintaining your position, on the view that, even after a significant plunge in price, some sort of rebound will happen once the housing market normalizes.
To some extent, I agree with this. Housing may be a slump now, but it will not be one indefinitely. In fact, once the Federal Reserve brings down interest rates, a new residential real estate boom could emerge, due the ongoing housing shortage.
Still, while a revenue rebound/swing back to profitability would undoubtedly spark some sort of partial recovery for hard hit LendingTree shares above, don’t assume such a recovery will happen immediately. With the Fed determined to whip inflation, rates could stay near present level through 2024, only coming down slightly in 2025.
During this time, LendingTree’s operating performance could normalize. Alongside measures like cost-cutting, the company could get back to having positive free cash flow. Yet while this may help minimize or prevent further declines for TREE shares, chances are the housing market conditions necessary to drive needle-moving improvements are at least two years away.
No Need to Bark Up This TREE
Again, I can understand why value-focused investors may see opportunity with LendingTree shares. Given the high level of pessimism surrounding housing stocks right now, just a slight improvement to sentiment could give way to a rally back to relatively loftier price levels.
Yet while TREE could pay off for those willing to wait, based on the above-mentioned interest rate forecast, you may have to wait for a while before any sort of payoff happens. Meanwhile, there are oversold, beaten down stocks in other sectors that may begin their respective recoveries far sooner.
In short, when it comes to this stock, investors searching for opportunity in out-of-favor stocks are simply “barking up the wrong tree.”
I would suggest focusing on other names on your watchlist and skipping out on TREE stock for now.
TREE stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.