We recently compiled a list of the 7 Most Profitable Mid-Cap Stocks To Invest In. In this article, we are going to take a look at where Match Group Inc. (NASDAQ:MTCH) stands against the other profitable mid-cap stocks.
Inflation Data Raises Concerns
On October 10, the market faced a decline as economic data indicated persistent inflation, as reported by CNBC. The S&P 500 fell by 0.21%, closing at 5,780.05, while the Dow Jones Industrial Average decreased by 57.88 points, or 0.14%, to finish at 42,454.12. The Nasdaq Composite also dipped slightly, ending down 0.05% at 18,282.05.
The market reaction was largely influenced by the Consumer Price Index (CPI) report for September, which showed a monthly increase of 0.2%. This brought the annual inflation rate to 2.4%, slightly above analysts’ expectations of a 0.1% monthly gain and a year-over-year rate of 2.3%. Although this annual figure is the lowest since February 2021, some underlying data suggested stronger inflationary pressures than anticipated.
Luke O’Neill, a portfolio manager at CooksonPeirce, noted that the CPI report was as expected in most respects but highlighted that certain data points were “a little bit hotter than anyone would prefer.” He pointed out that investors were selling off small- and mid-cap stocks that are more sensitive to interest rates.
In response to the CPI report, Atlanta Fed President Raphael Bostic stated he was open to pausing interest rate cuts during the upcoming November meeting. He expressed that the current market fluctuations might warrant a more cautious approach rather than aggressive cuts. However, according to CME Group’s FedWatch Tool, fed funds futures trading data suggests an approximately 85% chance of a quarter-percentage-point cut.
Recent minutes from the Federal Reserve’s last meeting revealed some disagreement among officials regarding the size of September’s rate cut. While the majority supported the cut, some favored a smaller move.
On October 11, Northwestern Mutuals’ Brent Schutte appeared on CNBC’s “Power Lunch” to discuss the CPI report and the market reaction.
Brent Schutte, Chief Investment Officer at Northwestern Mutual, expressed concerns about a potential wage-price spiral, noting that significant wage increases at companies like Amazon and Walmart could contribute to ongoing inflation. He highlighted the Federal Reserve’s challenge in managing this situation, as they often react too late to labor market changes. Schutte pointed out that even with recent rate cuts, inflation remains a concern, particularly with the median CPI rising. He believes the Fed’s path forward will be more complex than investors anticipate, given the persistent inflationary pressures in the economy.
Schutte also expressed concern about the valuations of large-cap stocks, suggesting that the market is in a late-cycle phase. He noted that the economy is currently supported by a narrow segment, particularly manufacturing and lower-income consumers affected by rising interest rates. Schutte believes that small and mid-cap stocks could provide greater value for investors looking for returns over the next 3-5 years, as they are priced for a recession.
Methodology
To compile our list of the 7 most profitable mid-cap stocks to invest in, we used stock screeners from Finviz and Yahoo Finance. First, we defined mid-cap stocks as those with a market capitalization between $2 billion and $10 billion. Next, we focused on profitability by screening for stocks that had a 5-year EPS growth rate of over 10%. We sorted our results based on market capitalization and picked the top 20 stocks.
From this initial list of 20 profitable mid-cap stocks, we further narrowed our choices to stocks that had positive trailing twelve-month (TTM) net income and stocks that have grown their net income positively over the past 5 years. To ensure the reliability of our findings, we consulted reputable sources such as SeekingAlpha, which provided insights into the net income compound annual growth rate (CAGR) over the past five years, and YCharts, which offered information on TTM net income.
Finally, from this list of mid-cap stocks that met our criteria, we focused on the top 7 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s database of 912 elite hedge funds. The 7 most profitable mid-cap stocks to invest in are ranked below in ascending order based on the number of hedge funds holding stakes in them as of Q2 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A silhouette of an iPhone user scrolling through an online dating app, representing the company’s mobile application.
Match Group Inc. (NASDAQ:MTCH)
TTM Net Income: $649.9 Million
5-Year Net Income CAGR: 3.79%
Market Capitalization: $9.42 Billion
Number of Hedge Fund Holders: 43
Match Group Inc. (NASDAQ:MTCH) is an American internet and technology company that owns and operates a global portfolio of popular online dating services including Tinder, Hinge, Match.com, Meetic, OkCupid, Plenty of Fish, and other dating global brands. With services available in over 40 languages, the company caters to diverse markets worldwide.
The company has announced its decision to exit live streaming services in its dating apps, including Plenty of Fish and Hyperconnect’s Hakuna app. This move is part of a strategy to optimize investments and focus on areas where the company has a competitive advantage. Although this decision will result in an annual revenue loss of approximately $60 million, Match Group Inc. (NASDAQ:MTCH) believes it will enhance margins and support growth in the long term.
To strengthen its key growth apps like Tinder, Hinge, and Azar, Match Group Inc. (NASDAQ:MTCH) plans to reassign talent from Hyperconnect that specializes in artificial intelligence (AI). The company is confident that leveraging AI will improve the overall dating experience and create new opportunities for innovation.
In the Q2 2024 earnings call, management shared that over the next year, Tinder plans to integrate AI to enhance the dating experience, aiming to create a more exciting and innovative platform. The company is testing new tools to improve authenticity. Tinder has already launched features like the Photo Selector to make choosing profile pictures easier. Meanwhile, Hinge is experiencing impressive growth, with direct revenue increasing nearly 50% year-over-year in Q2 2024. New features such as Your Turn Limits and AI-enabled photo tools are enhancing user interactions and helping daters connect more effectively.
Match Group Inc. (NASDAQ:MTCH) reported a total revenue of $864 million for the second quarter of 2024, which is a 4% increase compared to Q2 2023. Revenue per payer rose by 9%, although the number of payers decreased by 5% year-over-year. Tinder generated $480 million in direct revenue, reflecting a 1% growth. Hinge saw impressive growth with direct revenue reaching $134 million, up 48% from last year. Additionally, Hinge’s payer count increased by 24% to nearly 1.5 million, showcasing its strong performance.
Over the last five years, the company has achieved a compound annual growth rate (CAGR) of 3.79% in net income. Match Group Inc. (NASDAQ:MTCH) ranks among the most profitable stocks. Analysts are also bullish on MTCH. The 12-month median price target of $44.50 set by analysts indicates a potential upside of 20% from the current stock price.
According to Insider Monkey’s Q2 database of over 900 hedge funds, 43 hedge funds held stakes in Match Group Inc. (NASDAQ:MTCH) in the second quarter of 2024.
Overall MTCH ranks 1st on our list of the most profitable mid-cap stocks to invest in. While we acknowledge the potential of MTCH as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MTCH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.