The demand for real estate has taken a hit amid rising interest rates and a faster-than-expected rise in mortgage rates. Higher home prices and the lack of listings have also affected the industry. Given this backdrop, fundamentally weak real estate stocks Redfin Corp. (RDFN), WeWork (WE), Alset EHome International (AEI), Fathom Holdings (FTHM), and Doma Holdings (DOMA) could be ideal candidates for selling short. Read on….
The Federal Reserve has been hiking interest rates aggressively to tame the surging inflation. It has implemented three rate hikes this year, with many more in the offing as inflation continues to make new highs. The real estate sector has been badly affected due to falling home sales amid a lack of listings, rising mortgage rates, high home prices, inflation, and a chaotic economy.
According to the latest report from mortgage finance giant Freddie Mac, the average rate on a 30-year fixed mortgage rose to 5.51% earlier this week, up from 5.30% a week ago. This increase in mortgage rate could put further pressure on mortgage demand, affecting the real estate sector.
“Inflation and high mortgage rates are taking a bite out of homebuyer budgets,” said Redfin Chief Economist Daryl Fairweather.
Given this backdrop, we think fundamentally sound real estate stocks Redfin Corporation (RDFN), WeWork Inc. (WE), Alset EHome International Inc. (AEI), Fathom Holdings Inc. (FTHM), and Doma Holdings Inc. (DOMA) could witness substantial price declines in the near term. So, these stocks could be ideal candidates for selling short.
Redfin Corporation (RDFN)
RDFN offers residential real estate brokerage services through its Real Estate Services, Properties, and Rentals segments. It assists individuals in the purchase or sale of the home and also provides title and settlement services.
On July 15, 2022, RDFN reported that the median sale price for U.S. homes declined marginally from its all-time high in June, leading to fewer sales and supply gains. Due to homebuyers’ tight cost limits, analysts expect this environment to continue for the next few months.
In the fiscal first quarter ended March 31, 2022, RDFN’s gross profit decreased 71.2% year-over-year to $72.54 million. RDFN’s net loss widened 153.8% year-over-year to $90.80 million, while its adjusted EBITDA loss fell 215.1% year-over-year to $48.84 million. The company’s net loss per common share amounted to $0.86, representing a decline of 132.4% year-over-year.
Analysts expect RDFN’s loss per share to increase 114.4% year-over-year to $0.62 for the second quarter ended June 2022. It has missed the consensus EPS estimates in three of the trailing four quarters.
RDFN has declined 83.6% over the past year to close the last trading session at $8.89.
RDFN’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of F, which translates to Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Stability and a D grade for Growth, Sentiment, and Quality. It is ranked #42 of 43 stocks in the D-rated Real Estate Services industry. Click here to see RDFN’s POWR Ratings for Value and Momentum.
WeWork Inc. (WE)
WE provide flexible workspace solutions, including technology-driven turnkey solutions, flexible spaces, and community experiences to individuals and organizations. Its product offerings include Core space-as-a-service, WeWork All Access, WeWork On Demand, and WeWork Workplace.
WE’s loss from operations narrowed 76.2% year-over-year to $358 million in the first quarter ended March 31, 2022. Its adjusted EBITDA narrowed by 52.5% from its year-ago value to $212 million, while its net loss attributable narrowed 78.5% year-over-year to $435 million. Also, its net loss per share amounted to $0.57, narrowing 96% from the same quarter last year.
WE’s EPS is expected to remain negative in fiscal 2022 and 2023. Shares of WE have declined 50% over the past nine months and 51.8% over the past year. It closed the last trading session at $5.20.
WE’s POWR Ratings reflect its poor prospects. The company has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Value, Stability, and Quality and a D grade for Growth and Sentiment. Within the same industry, it is ranked last. To see WE’s rating for Momentum, click here.
Alset EHome International Inc. (AEI)
AEI is engaged in real estate development, financial services, digital transformation technologies, biohealth activities, and consumer products. It operates through four segments: Real Estate, Digital Transformation Technology, Biohealth, and Other Business Activities.
For the quarter ended March 31, 2022, AEI’s total revenue decreased 65.2% year-over-year to $1.95 million. Its net loss attributable to common stockholders widened 3.7% from the year-ago value to $6.46 million. The company’s net loss per share narrowed 90.4% year-over-year to $0.07.
The stock has slumped 93.8% over the past year to close the last trading session at $0.31.
AEI’s POWR Ratings are consistent with this bleak outlook. It has an overall F rating, equating to a Strong Sell in our proprietary rating system.
The stock has an F grade for Growth, Stability, and Quality. Again, in the same industry, it is ranked #43. To see AEI’s POWR Ratings for Value, Momentum, and Sentiment, click here.
Fathom Holdings Inc. (FTHM)
FTHM is a cloud-based provider of real estate brokerage services through its three segments: Real Estate Brokerage, Mortgage, and Technology. Its website provides buyers, sellers, landlords, and tenants access to all available properties for sale or lease on the multiple listing service.
FTHM’s total operating expenses increased 80.3% year-over-year to $95.72 million for the fiscal first quarter ended March 31, 2022. The company’s net loss widened 76.4% year-over-year to $5.99 million. Also, its loss per share widened 48% year-over-year to $0.37.
Street expects FTHM’s loss per share to amount to $0.22 for the second quarter (ended June 2022), representing an increase of 46.7% from the prior-year period. Shares of FTHM have declined 73.8% over the past year to close the last trading session at $6.81.
FTHM’s POWR Ratings reflect its poor prospects. The company has an overall rating of D, equating to Sell in our proprietary rating system.
FTHM has an F grade for Quality and a D grade for Stability. It is ranked #38 in the same industry. To see additional ratings (Growth, Value, Momentum, and Sentiment) for FTHM, click here.
Doma Holdings Inc. (DOMA)
DOMA provides title, escrow, and settlement services to homeowners, lenders, title agents, and real estate professionals. It operates through Distribution and Underwriting segments. The company also originates and underwrites businesses and provides services in purchase/resale and refinance transactions in the residential real estate market.
In the fiscal first quarter ended March 31, 2022, DOMA’s total revenues decreased 12.2% year-over-year to $112.21 million. Its loss from operations widened 619.6% year-over-year to $59.53 million, while its net loss came in at $50.03 million, up 325.5% year-over-year. The company’s net loss per share narrowed 11.8% year-over-year to $0.15.
Analysts expect DOMA’s EPS for fiscal 2022 to remain negative. Its revenue for fiscal 2022 is expected to decline 13.3% from its prior-year value to $483.83 million. The stock has slumped 91.9% over the year to close the last trading session at $0.80.
DOMA’s POWR Ratings are consistent with this bleak outlook. It has an overall D rating, equating to Sell in our proprietary rating system.
The stock also has a D grade for Growth and is ranked #36 in the Real Estate Services industry. To see DOMA’s ratings for Value, Momentum, Stability, Sentiment, and Quality, click here.
RDFN shares were trading at $9.11 per share on Tuesday morning, up $0.22 (+2.47%). Year-to-date, RDFN has declined -76.27%, versus a -18.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta’s profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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