The Meet Group (NASDAQ:MEET) owns numerous social and dating applications, including MeetMe, LOVOO, Skout, and Tagged. The company has invested heavily to develop a live-streaming video platform, allowing the company to pivot in recent years from social media that generates advertising revenue to a video-centric offering that generates revenue from in-app user purchases. The company's properties have eclipsed 5 million daily active users (DAU), with over 800,000 video daily active users.

The stock has experienced substantial price swings over the years and still has a 1.58 beta that indicates above average volatility. Meet Group shares have reached two significant peaks — surpassing $10 in 2006 and climbing above $14 in 2011, but it has settled to the $5 range as of late 2019. Volatility is common among smaller tech stocks, especially those with relatively high growth rates, but volatility is often augmented by lofty valuations that can stoke exuberance and fear among investors.

Three women meet for coffee

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The Meet Group doesn't carry a lofty valuation

The Meet Group's shares trade at only 7.67 times forward earnings, a PEG below 1.0, 11.97 price-to-free-cash-flow, and a 12.77 EV/EBITDA. By comparison, the Match Group (NASDAQ:MTCH), which owns Tinder, Hinge, PlentyOfFish, and OkCupid, is three to four times higher for each of those metrics. Snap, which owns the massively popular video and photo-based social app Snapchat is not profitable by any popular measure, but it carries a 13.1 price-to-sales ratio, so it is also much more expensive than Meet. Spark Networks, which owns a large portfolio of dating sites, is slightly cheaper based on price-to-free-cash-flow. But valuation here is complicated by the fact that shares trade on a foreign market, and the company is struggling to sustain operating profits.

The above battery of metrics covers a number of profitability measurements and controls for differences in both growth and capital structure. All this evidence is sufficient to rule out meaningful speculation or extremely bullish forecasts, but that does not necessarily indicate that the valuation is attractive. 

Some risks are apparent

The Meet Group reported slower DAU growth, lower average revenue per DAU, and fewer video DAUs than the prior year in the most recent quarter. Analysts' forecasts predict a slowdown in dating app growth overall, as they become widely used among singles and the low-hanging fruit disappears. The marketplace is very crowded with competition, and successful dating apps theoretically force themselves to constantly replace users who no longer have any utility for a dating service once they meet a long-term partner and delete the service.

From a social networking perspective, Meet has to deal with massive incumbents, such as Facebook, with much stronger network effects and brand recognition. New competitors appear frequently, and new entrants are often absorbed by large competitors that put financial clout behind the novel name.

Coherent narrative for upside potential

The Meet Group has a valuation that leaves substantial room for appreciation if the market becomes enthused about the company's prospects. While Meet's growth is not setting the world on fire, the company has solid fundamentals and has put itself in a good position to diversify revenue streams and keep up with evolving consumer tastes.

The social and dating space has exhibited acquisitive behavior in the past, with many larger companies stimulating growth by absorbing newly popular businesses. The Meet Group is certainly a candidate for acquisition, and rumors have recently emerged of a buyout at a premium to market prices, though this sort of analysis is always speculative.

The catalyst for appreciation might not be glaringly apparent today, but there are undeniably avenues to high share prices. This unlikely to be an alluring play for growth investors, but it is probably worth a look from value investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.