Amidst turbulent times in the housing market, residential real estate company Redfin (NASDAQ:RDFN) is trying to weather the storm. The stock is down over 90% in the past three years, and recent financial results were mixed. That said, there’s clear evidence of improving efficiency. Redfin shares trade at a discount, but patience and vigilance for signs of recovery are warranted.
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Challenging Times in Real Estate
Redfin is a player in the residential real estate brokerage and mortgage origination sector, operating across more than 100 markets in the United States and Canada. The company has approximately 2,000 lead agents and differentiates itself by charging a lower fee structure (1% or 1.5%) than the average industry listing fees or commissions (2.5% to 3%).
The past few years have been rough on the housing market. High interest rates, soaring home prices, and less homes on the market have combined to drive home sales down to levels not seen since the Global Financial Crisis over a decade ago. Like most firms in the space, Redfin has struggled as a result.
The recent suit against the National Association of Realtors (NAR), alleging fee collusion, may pressurize downwards the overall transaction fees in the future. This could potentially benefit Redfin, given its existing competitive low-fee structure.
Recent Financial Results
Redfin’s financial performance in Q4 was mixed. EPS came in at -$0.20, outperforming the forecasted -$0.22. The company fell slightly short of the consensus on Q4 revenue, reporting $218.1 million against the predicted $220.32 million.
On the whole, it was a tale of improving efficiency in spite of challenging market conditions, as the company improved both gross and operating margins.
Looking ahead, Redfin is projecting Q1 revenue in the range of $214 million-$223 million, around the consensus of $219.1 million. However, a net income loss of between $72 million to $65 million for Q1 is anticipated.
RDFN’s Valuation
RDFN shares have been rather volatile over the past few years, and the stock has fallen over 31% year-to-date to $7.08. It is trading towards the bottom quartile of its 52-week range of $4.26-$17.68.
The falling share price has pushed the stock into undervalued territory. Its price-to-sales ratio of 0.74x is below the Real Estate sector average of 3.33x and the Real Estate Services industry average of 1.57x.
Negative price momentum and a depressed valuation make for an unattractive mix in the near term. However, the company appears to be maintaining a focus on long-term growth and efficiency amidst a tough housing market. Investors should be on the lookout for signs of a recovery coincident with the Fed’s interest rate policy, which could signal a turning point for the company’s shares.
What is the Target Price for RDFN Stock?
Analysts covering RDFN stock have taken a wait-and-see approach. Many have recently cut their price targets based on the company’s guidance on lower Q1 revenue, and expectations of an ongoing challenging macro environment.
RDFN is currently listed as a Hold based on 15 analysts’ stock ratings, including 12 Holds, in the past three months. The average Redfin price target of $7.14, with a range of $4-$10, does not indicate much upside from current levels.
Closing Thoughts
Redfin finds itself in a challenging position amidst a tumultuous housing market. While the company’s recent Q4 results were mixed, the company’s efforts to enhance its efficiency are evident. Its low-fee structure could also become a key advantage, should the NAR lawsuit result in an industry-wide fee reduction.
While the short-term picture may seem uninspiring, with an expected drop in revenue in Q1, ultimately, shareholders and interested investors are best served monitoring the housing market closely, keeping a keen eye on Federal interest rate policy and Redfin’s response to these external factors. For now, Redfin is a long-term prospect to watch.
