Down 44% in a year, is this US growth stock screaming to be bought?

Jon Smith flags up an interesting growth stock from across the pond that has missed out on the broader market rally so far this year.

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When we think of US growth stocks, we immediately think of Apple, Amazon and other members of the ‘Magnificent 7’ club (Alphabet, Meta, Microsoft, Nvidia and Tesla). Yet there are plenty of other top tech firms that share the spotlight. For example, Bumble (NASDAQ:BMBL) is one of the most popular dating apps in the world. Yet with the stock down 44% over the past year, is this a failed project or a dip worth buying?

A rundown of the company

Bumble acts to match users based on sharing profile details and photos, which a user can swipe left (to reject) or right (to accept). The business was founded in 2014 and went public in 2021. Ironically, it was started by Whitney Wolfe Herd who previously worked at another dating app company.

The firm makes money through different avenues. This includes a premium paid-for platform, cash from advertisers and in-app purchases.

It has grown to 3.8m paid users as of Q3, marking a jump from the 3.3m in the same quarter last year, highlighting the growth of the business.

Disappointing results

Even though the business is growing, results so far this year haven’t kept pace with analyst expectations. This was true of the Q3 results, where the revenue figure missed the forecast. This now means it’s unlikely to reach the full-year outlook plan.

News broke last week that Wolfe Herd would also be stepping down as CEO. I’ve no doubt that this story will continue to evolve in coming weeks, but whatever the reasons for the move, it’s not great for the stock.

Large market potential

There’s no doubt that dating apps will continue to grow in size and scale in coming years. There’s strong demand for the product. As Bumble is already doing, there’s huge scope to expand the offer with supplementary services. The CEO commented in the latest results that they are “making progress on the sizeable opportunity beyond dating”.

In my eyes, this means the potential value of Bumble is considerably larger than is currently being considered.

Not overvalued

Another reason to like the stock is because of the fall this year. Tech stocks usually trade at lofty valuations based on high levels of expected future growth. Yet with the performance of Bumble shares this year, the stock trades with almost zero premium.

For example, the enterprise value of Bumble is $2.15bn, while the market-cap is close at $1.95bn. This shows the share price isn’t factoring in any optimism for future growth and is just trading at the fundamental value of the company.

I believe Bumble has a bright future based on the potential market size and the level of growth it currently has. Once the departure of the CEO is behind us and the business has moved on, I think many will flock back to buying the stock. On that premise, I do think the stock is worth investors considering right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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