A Fresh Look at LegalZoom (LZ) Valuation After Strong Subscription Growth and Improving Cash Flow

LegalZoom.com (LZ) has attracted fresh interest after recent analysis highlighted its performance streak compared to other industry players. The spotlight is on the company’s double-digit subscription unit growth, healthy earnings per share gains thanks to buybacks, and a stronger free cash flow margin. These achievements hint that LegalZoom.com’s moves to roll out new features and premium offerings are starting to boost its monetization efforts, something investors have kept a keen eye on in a competitive market.

Putting this into context, LegalZoom.com’s stock has made significant progress over the past year, up an impressive 68%. Even looking at the past three months, shares have surged by 23%, with momentum building in contrast to muted or declining trends among its direct competitors. If we step back, this aligns with the company’s broader story of outpacing sluggish industry sales and capitalizing on steady subscription growth and margin expansion.

With shares gaining traction and the market reacting to LegalZoom.com’s improving fundamentals, is there more room for upside, or are investors already fully pricing in its growth story?

Most Popular Narrative: 10.2% Overvalued

According to the most widely followed narrative, LegalZoom.com is currently trading above its fair value, with the fair value assessment coming in at $9.88 per share. This suggests that, based on underlying financial projections and market expectations, there may be limited upside at current levels.

LegalZoom’s future performance hinges on its ability to execute its strategic shift towards high-margin subscription services, leverage AI technology, and adapt to changing market conditions. Broader economic trends, including small business activity and digital adoption, will play critical roles.

Curious about why LegalZoom’s valuation bucks the usual trend? This narrative reveals a unique blend of ambitious profit forecasts and bold assumptions about future market shifts. Want to see which assumptions about revenue stability and margins push the company into “overvalued” territory? The numbers in this outlook just might surprise you.

Result: Fair Value of $9.88 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, shifts in small business formation trends or intensified competition could quickly challenge the current overvaluation narrative and alter LegalZoom’s outlook.

Find out about the key risks to this LegalZoom.com narrative.

Another View: The SWS DCF Model Weighs In

Looking at LegalZoom.com from the perspective of our DCF model, results paint a completely different picture. This approach currently suggests the stock is meaningfully undervalued, contradicting the overvalued narrative. So which story fits reality?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out LegalZoom.com for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own LegalZoom.com Narrative

If you have a different perspective or want to investigate the numbers directly, you are free to shape your own view in just a few minutes. Do it your way

A great starting point for your LegalZoom.com research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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