Shareholders of MediaAlpha would probably like to forget the past six months even happened. The stock dropped 26.7% and now trades at $9.65. This might have investors contemplating their next move.

Following the pullback, is now a good time to buy MAX? Find out in our full research report, it’s free.

Why Does MediaAlpha Spark Debate?

Powering nearly 10 million consumer referrals each month in the insurance marketplace, MediaAlpha (NYSE: MAX) operates a technology platform that connects insurance carriers with high-intent consumers shopping for property, casualty, health, and life insurance products.

Two Things to Like:

1. Skyrocketing Revenue Shows Strong Momentum

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, MediaAlpha grew its sales at an exceptional 13.7% compounded annual growth rate. Its growth beat the average business services company and shows its offerings resonate with customers.

2. EPS Surges Higher Over the Last Two Years

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

MediaAlpha’s EPS grew at an astounding 564% compounded annual growth rate over the last two years, higher than its 69.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

One Reason to be Careful:

Shrinking Adjusted Operating Margin

Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.

Looking at the trend in its profitability, MediaAlpha’s adjusted operating margin decreased by 2.7 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. MediaAlpha’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its adjusted operating margin for the trailing 12 months was 4.7%.

Final Judgment

MediaAlpha’s merits more than compensate for its flaws. With the recent decline, the stock trades at 7.3× forward P/E (or $9.65 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.

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