Is Porch Group undervalued? Berenberg’s Justin Ages thinks so

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Porch Group Inc (NASDAQ: PRCH) has had a rough couple of months with the stock down about 45% since November 16th, which makes up for a great opportunity to buy it at a discount, says Berenberg’s Justin Ages.

Ages’ comments on CNBC’s ‘The Exchange’

According to Ages, Porch is a smart pick for investors interested in playing the housing market. Stating his reasons why he likes the stock, he said on CNBC’s “The Exchange”:

I think the market misunderstands Porch’s business model. It’s a great play on the housing market. If you think about the number of people moving each year, there’s this large opportunity. And if someone like Porch can make the moving process easier, it will be worth it.

Ages rates the Washington-headquartered company at “buy” with a price target of $21 a share that represents a more than 45% upside from here. Porch debuted on the Nasdaq Stock Exchange in early 2020 at a per-share price of about $10.

Porch Group deserves a higher multiple

Porch is currently trading at a multiple of close to 4.5 but based on his growth expectations, Ages says it is undervalued and deserves to trade at a multiple of around 5.0. He agreed it wasn’t profitable yet but didn’t see it as a concern since Porch is investing aggressively in growth for now.

If you look at their progression, they’re investing a lot in business. So, gross margin is low. But they are in the acquiring mode. They bought a big insurance company, CSE Insurance Group, that is expected to close in mid-2022, giving them access to the California market.

Porch also bought American Home Protect for $38.6 million in 2021. Once the $1.41 billion company slows down on investments, Ages added, its gross profit will pick up quickly. Porch Group will report its quarterly earnings in March.

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