Shares of Match Group (NASDAQ:MTCH) have had a rough couple of weeks. After peaking above $170 per share in early February, the stock closed on March 26 at $138.27, a 20% haircut in a little over a month. Shareholders are no doubt feeling some pain, but a sell-off like this can be beneficial for anyone looking to snap up shares at a discount. 

Here's how investors should think about Match Group stock after the recent decline.

a Person looking at a dating app and deciding whether to like a profile.

Image source: Getty Images.

What happened

Despite the sell-off, nothing material has changed for the business. In fact, the last major update -- Match Group's decision to acquire Hyperconnect -- was what drove the stock to all-time highs in the first place. 

All things considered, this sell-off looks like it's just normal volatility that tends to come with any high-growth company. And even with the 20% decline, shares are still up 30% since last summer's spin-off from Interactive Corp (NASDAQ:IAC), so there's no reason for any long-term shareholders to panic here.

The business looks fine

Taking a look under the hood, Match grew revenue 17% in 2020 to $2.4 billion, even with the pandemic putting a damper on the overall dating market. It also continues to generate lots of free cash flow with almost $750 million falling to the bottom line last year alone. With a consistent 30%-plus free cash flow margin and double-digit sales growth, Match Group is doing exceptionally well at the moment.  

We are also seeing the emergence of new brands outside of its flagship Tinder app. Tinder still produces the majority of Match Group's revenue and saw 18% sales growth last year, but some of the company's investments in other brands are now bearing fruit. For example, Hinge, a relationship-focused app that Match acquired in 2019, saw 63% growth in downloads while sales tripled last year.

Lastly, the acquisition of Hyperconnect looks promising. The South Korean company generated around $200 million in sales last year and is guiding for 50% growth in 2021. Its flagship app Azar has been downloaded 500 million times and allows users to meet and video chat with random people around the globe. Match is acquiring the business for about $1.7 billion, or around eight times its trailing 12-month sales. If Match Group can successfully integrate Hyperconnect under its umbrella, raise its cash-flow margin to 30% like the rest of its brands, and help it sustain high top-line growth, the acquisition price may look like a bargain a few years from now. 

Valuation

Even with the 20% sell-off, Match Group still trades at a trailing price-to-sales (P/S) ratio of 15.6 and a price-to-free-cash-flow ratio (P/FCF) of 49.8. Those are sky-high multiples relative to the broad market. However, if you believe Match Group can put up approximately 15% top- and bottom-line growth over the next few years and beyond (2021 guidance calls for 17% revenue growth), a premium valuation like this is much more palatable.

So is the stock a buy?

It is rare to consider a company trading at 50 times free cash flow a screaming buy, and Match Group is no exception here. If you're already a shareholder, there's no need to fret as a 20% decline is within the normal range of volatility, especially given the events of the past year. However, if you like Match Group's business prospects over the long term but still think the stock commands too high a premium, you can start your position with a small number of shares with plans to buy more if the stock falls further.

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.