Should You Buy Momo Inc. (NASDAQ: MOMO) Now?

in INVESTING IDEAS by

Momo Inc. (NASDAQ: MOMO) investors have enjoyed seeing the stock price increase by 37.8% over the last month. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at the company’s expected growth and valuation based on its most recent financial data to see if there is further upside moving forward.


Is Momo Still Cheap?

Good news, value investors! Momo is still a bargain right now. According to the valuation below, the intrinsic value for the stock is $60.43, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low.

Momo Inc. Valuation Detail
Analysis Model Fair Value Upside (Downside)
10-yr DCF Revenue Exit $71.96 35.9%
5-yr DCF Revenue Exit $64.92 22.6%
Peer Revenue Multiples $37.07 -30.0%
Peer EBITDA Multiples $47.14 -11.0%
10-yr DCF Growth Exit $79.26 49.7%
5-yr DCF Growth Exit $68.24 28.9%
Peer P/E Multiples $54.45 2.8%
Average $60.43 14.1%

Click on any of the analyses above to view the latest model with real-time data.

What’s more interesting is that Momo’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.


What Does The Future Of Momo Look Like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations.

Momo projected ebitda chartsource: finbox.io data explorer

With EBITDA expected to grow on average of 25.3% over the next couple years, the future certainly appears bright for Momo. It looks like higher cash flows are in the cards for shareholders, which should feed into a higher share valuation.


How This Impacts You

Many investors separate stocks into value and growth categories based on quantitative metrics. However, one of the most famous investors in the world views this as foolish. In Warren Buffett’s 1992 letter to Berkshire Hathaway shareholders, Buffett touches upon a subject at odds with much of the investment industry:

“Most analysts feel they must choose between two approaches customarily thought to be in opposition: ‘value’ and ‘growth.’ Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking… In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value.”

While investors tend to categorize stocks into value and growth, some of the most successful investors view growth as simply one component of a company’s value.

Momo’s optimistic future growth does not appear to have been fully factored into the current share price with the stock still trading below its intrinsic value. Therefore, it may be a good time to purchase shares or increase your position in the company.

But before making an investment decision, I recommend you continue to research Momo to get a more comprehensive view of the company by looking at:

Risk Metrics: what is Momo’s cash ratio which is used to assess a company’s short-term liquidity. View the company’s cash ratio here.

Valuation Metrics: what is Momo’s free cash flow yield and how does it compare to its publicly traded peers? This metric measures the amount of free cash flow for each dollar of equity (market capitalization). Analyze the free cash flow yield here.

Efficiency Metrics: return on equity is used to measure the return that a firm generates on the book value of common equity. View Momo’s return on equity here.

As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.

Expertise: Valuation, financial statement analysis. Matt Hogan is also a co-founder of finbox.io. His expertise is in investment decision making. Prior to finbox.io, Matt worked for an investment banking group providing fairness opinions in connection to stock acquisitions. He spent much of his time building valuation models to help clients determine an asset’s fair value. He believes that these same valuation models should be used by all investors before buying or selling a stock. His work is frequently published at InvestorPlace, Benzinga, ValueWalk, AAII, Barron’s, Seeking Alpha and investing.com. Matt can be reached at matt@finbox.io or at +1 (516) 778-6257.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.