Redfin (RDFN) Stock: Here’s a look at the factors to consider before investing

It is estimated that the U.S. real estate industry would expand at a compound annual rate of 7% through 2026, catalyzed by the growing adoption of automation in property management and innovation. The housing market witnessed an unexpected rally during the COVID crisis and is forecast to remain buoyant this year.

Real estate brokerage Redfin Corporation (NASDAQ: RDFN) has been a beneficiary of the housing boom, with the favorable demand conditions translating into stable revenue growth in recent quarters. The performance of the Seattle-based company’s stock was quite impressive in the early phase of the pandemic, growing multi-fold and reaching a peak early last year. However, it changed course since then and experienced a steady decline.

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Read management/analysts’ comments on quarterly reports

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Investing in RDFN

Experts are divided in their recommendations but are mostly in agreement when it comes to the stock’s growth prospects. The current target price represents an 80% growth from the last closing price, which is relatively low. The low valuation makes RDFN attractive, but the company’s inconsistent financial performance is a dampener. It is worth noting that Redfin could not maintain profitability even at the peak of the housing market rally, which could be a concern for stakeholders.  

Meanwhile, the management seems to be doing the right things as far as long-term growth is concerned, from adopting advanced technology and offering competitive prices to expanding the portfolio and enhancing customer service. Currently, it is preparing to acquire mortgage lending firm Bay Equity Home Loans for around $135 million, a move that complements the strategy of growing into a one-stop-shop for brokerage, lending, and other services. The acquisition is expected to close in the second quarter.

Housing Boom

On the positive side, estimates show that housing demand would remain strong this year and beyond though the market faces the risk of overheating. Construction firms will continue to be affected by supply chain constraints and labor shortages, while many customers would be discouraged by the high prices and short supply of residential units. But the picture looks rosy from the perspective of real estate consultants, who will continue benefiting from the hectic buying and rental activity.

From Redfin’s Q3 2021 earnings conference call:

“Agents who once described the market as crazy, because demand was so strong and supply was so low, now use words like hectic or chaotic, because demand is more volatile and it’s hard to predict which homes will sell. Easing competition among homebuyers has made it easier to put deals together, and demographic and social changes are likely to sustain the market through early 2022.“

Key Numbers

In the third quarter of 2021, Redfin’s revenues more than doubled to $540 million, which is also above the market’s projection. As a result, net loss narrowed to $20.6 million or $0.20 per share from $31.9 million or $0.30 per share a year earlier. The company’s iBuying service RedfinNow contributed significantly to the top line.

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Zillow Stock: After downsizing, what lies ahead for the real estate marketplace

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After losing significant momentum since peaking last year, Redfin’s shares are currently trading close to the pre-crisis levels. The stock, which has lost nearly 44% in the past six months, traded lower on Tuesday afternoon.