Shares of Redfin and Opendoor Technologies have experienced an astonishing surge this year. However, according to Gordon Haskett’s Robert Mollins, the time has come to face reality.
In a recent move, Mollins downgraded these two real estate stocks from Hold to Underperform, which is equivalent to a Sell rating. Despite this, he did increase the price targets modestly. Redfin’s target now stands at $10, while Opendoor’s target is set at $3.
Reflecting Mollins’ assessment, Redfin’s stock witnessed a decline of approximately 4.5% during Wednesday’s trading, reaching $15.23. Opendoor faired slightly better with only a 0.3% drop, reaching $4.38.
This year, both Redfin (RDFN) and Opendoor (OPEN) have seen their shares skyrocket by around 276% and 279% respectively. These impressive gains overshadow the S&P 500 index’s relatively meager 19% increment. The surge in stock prices can be attributed, in part, to investors’ optimism regarding the Federal Reserve potentially ending its string of interest rate hikes that began last year. Should interest rates stabilize or decrease, mortgage rates could follow suit, ultimately stimulating the housing market. It’s worth noting that current rates for a 30-year fixed mortgage hover around 7%, compared to 5.5% during the same period last year.
Mollins offers a different perspective on the situation. According to him, the market has already factored in the housing market recovery, causing these stock prices to become overly inflated. In his note from Wednesday, he writes, “There has been a lot of focus on improving housing dynamics over the past couple of months.”
In conclusion, Mollins presents a reality check, urging investors to consider the potential risks associated with Redfin and Opendoor. While these stocks have enjoyed a remarkable run, he believes the time has come for a more critical evaluation of their future prospects.
Housing Market Investors Ignoring Company Fundamentals
Investors’ positive sentiment towards the housing market has overshadowed the importance of evaluating the fundamental factors of companies, according to an analyst. Although the market appears promising, it is crucial to consider key elements that drive a company’s success.
Redfin, a leading real estate brokerage firm, recently announced its projections for the second quarter of 2022. The company expects its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) to range from negative $9 million to positive $1 million for the quarter ending in June. On the other hand, Opendoor, a prominent online real estate marketplace, anticipates EBITDA losses between $180 million and $200 million for the same time period.
Unfortunately, Redfin’s adjusted EBITDA has not been favorable in recent quarters, with negative results in the first quarter of 2022 and continuing into subsequent periods. Similarly, Opendoor has also experienced negative adjusted EBITDA for the past three quarters.
CFO Christy Schwartz, during Opendoor’s earnings call in May, expressed optimism about improving EBITDA performance during the latter half of the year. She attributed this improvement to the company’s efforts to clear its inventory of homes purchased when prices were higher in the previous year.
It is essential to recognize that investors should not solely rely on a positive housing market outlook. Evaluating a company’s financial health and future prospects should also be a crucial part of investment analysis.