Shares of Redfin Corporation (NASDAQ: RDFN) rose to a two-year high of $29.50 on Thursday, after upbeat fourth-quarter earnings results. The residential real estate broker’s stock, which has risen over 43% in the past year, benefited from the home prices growth in January despite a fall in housing supply.
The stock maintained the uptrend on Thursday and investors believe that Redfin is gaining momentum – a trend that could continue. The shares are above the 50-day moving average of $23.52 and the 200-day moving average of $19.63.
In January, the most affordable metro areas continued to experience the biggest gains in home prices. A report from Redfin stated that low inventory is causing a crunch in markets across the country, even in the expensive coastal cities.
For the fourth quarter, Redfin reported a narrower loss, driven by strong growth in real estate service revenue. The company benefited from its multi-year investments in mortgage, title, renovations and instant offers. The market share of US existing home sales increased by 13 basis points from last year.
The company expects gross margins to keep improving in 2020, backed by efficiency gains in many of its businesses, and standardized at a higher price for listing customers. The transaction growth is expected to slow significantly but will be more than offset by higher fees in 2020.
Despite its primary business remaining no different from any other real estate broker, the company’s experiment with a new business model turned out to be beneficial. Redfin Direct and RedfinNow are expected to drive the company’s future growth. Investors believe that the new business model, along with upbeat results and home-price growth, will likely drive returns in the near term.
Market analysts believe that the stock could perform better in the long term despite the near-term concerns. The return on equity was minus 24% in the trailing twelve months, as the company incurred losses. This is likely to change in the future. The majority of the analysts recommend “holding” the stock, with an average price target of $24.25. The stock has been trading between $14.70 and $29.50 for the past 52 weeks.
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