In case you didn’t get the memo, it’s not cheap to borrow money nowadays. LendingTree (NASDAQ:TREE) might be considered a fintech business, but it’s also a lender. Consequently, the company is having problems stemming from high interest rates. As for TREE stock, it gets a “D” grade and isn’t a good value just because its price is down for the year.
Here, we’re applying the principle of “Price is what you pay, but value is what you actually get.” If LendingTree has a large debt burden and a dwindling capital position, then the company’s shares probably won’t be a good value. So, value hunters should seek bargains elsewhere.
Investors Shaken Out of TREE Stock
TREE stock soared to $46 in early 2023, only to end up collapsing to $12 recently. In other words, bottom fishers and dip buyers got burned again and again.
If you’re looking for a textbook example of the difference between price and value, this is it. Investing in LendingTree only led to frustration in recent months, reinforcing the principle that a beaten-down stock can continue to decline for a long time.
LendingTree is expected to report its third-quarter earnings in early November. Until then, we can refer to the company’s second-quarter 2023 results. Disconcertingly, LendingTree’s cash and cash equivalents dwindled from $298.845 million as of Dec. 31, 2022, to just $162.641 million as of June 30, 2023.
Meanwhile, LendingTree had $625.240 million worth of long-term debt as of June 30, 2023. Chances are, LendingTree will have to pay high interest rates on that debt, as interest rates are generally high nowadays.
Higher-for-Longer Rates and LendingTree
LendingTree reported declining year-over-year revenue and was unprofitable in Q2 of 2023. The company also reduced its full-year 2023 revenue guidance.
If you’re expecting a miracle to occur in the coming quarters, don’t count on it. Consumers are dealing with persistently high housing costs due to higher-for-longer interest rate policy.
Elevated borrowing costs are likely to crimp borrowing and lending activity, thereby putting negative pressure on LendingTree.
You can easily check LendingTree’s borrowing rates for mortgage loans, personal loans and auto loans.
You’ll find that it’s not cheap to service any type of loan nowadays. For example, LendingTree states that the average 30-year fixed mortgage rates is 7.57%. Just a few years ago, it would have been between 3% and 4%.
It will be challenging LendingTree to conduct robust business in this high-rate environment, which could persist for a while longer. Consequently, it’s highly risky to invest in TREE stock now.
Don’t Go Bottom Fishing With TREE Stock
LendingTree’s loyal investors had a great start to 2023 but then saw their year-to-date gains get wiped out. Will the months of frustration finally end in the fourth quarter?
Probably not. It’s not necessarily LendingTree’s fault that borrowers have to pay so much to service their debt. Yet, this is an ongoing issue that LendingTree will have to deal with.
At the same time, LendingTree has its own debt burden and will likely have to pay high borrowing costs. All in all, TREE stock gets a “D” grade and doesn’t offer a good value even if it’s far below its prior peak price.
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.
