Is this housing stock a long-term winner?

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Key points to remember

  • Redfin was founded in 2004 and was the first company to display homes for sale on an interactive map.
  • Revenues increased in the second quarter of 2022 as the company continues to make inroads into the traditional real estate model.
  • The outlook for the future is hazy as the housing sector faces headwinds that will directly impact Redfin and its bottom line.

Redfin entered the real estate world in 2007 changing the way homes were bought and sold, pioneering the use of interactive maps. Over the years, the company has evolved while staying true to its roots by shaking up the traditional real estate industry. Financially speaking, the company is doing well. However, with the problems facing the economy and, more specifically, the housing market, Redfin has tough times ahead. Here’s what investors should know before investing in this stock.

Redfin operates in the United States and Canada, its services are available in more than 1,000 metropolitan areas in the United States and expand into new markets every year. They are geared more towards DIY home buyers and sellers who don’t need a lot of labor during the process. However, they offer buyers and sellers professional help when they need it.

In 2007, Redfin was the first company to put real estate listings on an interactive map. In addition to buying and selling homes, Redfin offers title and settlement services and issues mortgages.

What sets the company apart is the fees it charges for selling a home. Traditional real estate agents charge 3% for the sale of a house. Redfin also charges 3% but gives the buyer about 1% discount.

In 2021, Redfin purchased RentPath so it could start offering rentals to people interested in renting rather than buying a home. Redfin expanded again in 2022 by buying Bay Equity home loans so they could start offering mortgages to buyers.

Redfin Income Statement Review

For the second quarter of fiscal 2022, Redfin achieved revenue of $606.9 million, compared to $471.3 million for the same quarter of fiscal 2021. This is a 29% increase. However, gross profit fell from $126.1 million in the second quarter of fiscal 2021 to $118 million in the current quarter. The problem here was rising costs due to inflation. The company reported a net loss for the quarter of $78.1 million, an increase of 180% from net loss of $27.8 million in the same period a year ago.

Looking forward to the third quarter of the current fiscal year, Redfin expects revenue growth of 9-16% year-on-year. It would be between $590 and $626 million. Redfin expects to see an overall net loss of between $79 million and $87 million in the quarter, largely due to headwinds in the housing market.

Balance sheet

Redfin has $1.31 billion in current assets, up 5% from $1.25 billion a year ago. Cash and cash equivalents totaled just $379 million, raising concerns as the industry slows. Total liabilities for the second quarter of fiscal 2022 are $1.94 billion, compared to $1.67 billion for the second quarter of fiscal 2021.

Redfin Stock Outlook

The outlook for Redfin stock is murky, especially in the near term. There are positive signs, an increase in market share compared to traditional real estate companies, as well as expansion into new markets. Additionally, their rental business is growing, as is their mortgage lending arm.

The problem facing Redfin is a struggling housing market. Demand is expected to slow as higher interest rates put the cost of owning a home out of reach for many buyers. This also includes people who are now spending more money each month on essentials, leaving less income to spend on a home.

Finally, home builders are starting to make it easier to build, which will also hurt sales as fewer homes become available. This would usually cause prices to rise since demand is greater than supply. However, with demand slowing, fewer homes to buy won’t have a short-term impact.

As for the stock itself, Redfin is down 91.64% year-to-date, closing at $4.41 per share on Oct. 13. Since its IPO in 2017, the stock price has averaged around $20 per share. The exception is 2020 to early 2021, when the stock spiked to $96.59. It has been steadily declining ever since.

In summary, investors should be patient with this stock. It might be tempting to buy now that the price is below $5 per share, but there’s no reason to invest immediately, as the stock price won’t start to rise with the current housing outlook. . For this reason, investors can slowly choose their places to invest.

If the company can survive this market downturn, it has the foundation to grow in the years to come. Not only are more home sellers choosing to register with Redfin, but buyers are starting to use the company for mortgage origination and rental assistance.

For investors who feel individual housing stocks are too risky, another option is to consider Q.ai’s investment kits. These kits are built based on themes using AI technology. For example, investors could choose the inflation protection kit or the infrastructure spending kit.

Conclusion

Redfin has been disrupting the real estate industry since its inception and plans to continue. For investors, it could be a long-term stock that has the potential to deliver healthy returns. However, in the short term, there are too many economic problems to make it a must-have stock now. A better option is for investors to spot buying opportunities and react slowly to build a position over time.

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