Meet the soon to be newest member of the S&P 500.
Match Group, the dating app stock, is set to join the large-cap benchmark index on Sept. 20, replacing Perrigo Co. Inclusion in the S&P is often a boon for stocks, which then benefit from passive investing in various funds aligned with the index.
Nancy Tengler, chief investment officer at Laffer Tengler Investments, said prospective investors in the stock should and often do buy on the narrative rather than the fundamentals. There are still concerns that give Tengler pause, though.
"First of all, we don't have enough history from a valuation standpoint to establish whether or not this stock, according to our work, is cheap, but if you look at more traditional metrics like price-to-earnings ratio at 58 times … you have a company that's trading at pretty lofty valuations," Tengler told CNBC's "Trading Nation" on Tuesday.
While Tengler gives credit to Match's Tinder app as the most downloaded in the space, she said uncertainty over the prolonged Covid pandemic and increased competition from the likes of Bumble could put pressure on the company's performance and outlook.
"That said … this is a free cash flow machine. They generated $759 million in free cash flow last year, so if you want to pick some up on weakness, I think you do and you tuck it away in your portfolio for the next three to five years," Tengler said.
Todd Gordon, founder of Inside Edge Capital Management, understands Tengler's reservations over valuation. Still, he holds the stock and said it will likely head higher – he sees a number of tail winds including how increasingly common online dating has become and greater access to fast broadband.
He said the stock needs to overcome one stubborn band of resistance before it heads higher.
"We've been fairly landlocked here right up to about $170 in terms of resistance, we need a push higher," he said during the same interview.
"They're the industry leader, I think they have probably a first mover advantage and I like the chart. As I said, through $170 and I wouldn't be afraid to add to my portfolio," Gordon said.
Match closed Tuesday at $159. It would need to rally less than 7% to reach Gordon's resistance target. It last traded above there in February 2021.
Disclosure: Gordon holds MTCH.
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