Down 80%, Is This Game-Changing Real Estate Stock a Buy?

Unstable marketplaces are stuffed with getting possibilities. The inventory current market as a full, as calculated by the broad S&P 500 index, is down by about 17% so much this yr, but superior-progress tech shares are down even additional substantially. Indicating there are masses of stocks on sale proper now that have lots of probable.

One authentic estate stock that I have been looking at intently is eXp Globe Holdings (EXPI 1.21%), the first and only 100% virtual brokerage. It is changing the real estate brokerage sport by offering a new — and in several respects, much better — way for agents to do business.

Thanks to the tech promote-off before this yr and expanding issue over the begin of the actual estate market place, the stock is down far more than 80% from its 2021 higher soon after it obtained crushed along with a lot of other growth and tech stocks. With these a steep drop, let’s just take a nearer seem at if this firm is a buy.

Revolutionizing the brokerage business

Compared with proven genuine estate brokerages like Remax, Keller Williams Realty, or Coldwell Banker Genuine Estate, eXp Globe Holdings has no physical workplaces. It operates 100% remotely and in the cloud. Almost everything from meetings and schooling to marketing assets and closing treatments is dealt with online. But which is not the only matter that would make the business distinct.

It passes the cost savings of getting no rent or business office overhead on to its brokers. Most brokerages give brokers a 60/40 split on each individual transaction — the brokerage will get 40% of the gross sales commission. By distinction, eXp features a much much more generous 80/20 split.

The enterprise also has tons of incentives, such as a earnings-sharing framework that allows its brokers to receive a percentage of the revenue created by agents they recruited. It also has caps on how considerably brokers have to pay the brokerage immediately after a sure sales quantity is arrived at, finally allowing brokers to get paid more the more transactions they carry out.

This distinctive structure is precisely why the enterprise is the fastest escalating brokerage in the entire world ideal now, with over 80,000 brokers in its network on six continents. Because 2016, the quantity of agents in its network has developed at an annualized amount of 55%, and it is nevertheless increasing.

Can eXp keep growing?

The firm’s business design is plainly captivating to brokers, but can it retain rising? I really feel there are a good deal of motives it can. Its incentive-based recruitment program motivates brokers to stick with eXp for the long haul because it offers them with extra passive revenue.

Agents also receive inventory-based incentives instead of monetary bonuses for reaching particular milestones, which additional motivates them to stick all-around as shareholders. The business is growing into new international locations. Its hottest marketplace is Chile, and this thirty day period, it shut its acquisition of Canada-primarily based Zoocasa Realty — a customer actual estate look for portal and brokerage — to assistance enhance its lead resources for its agents. It truly is also actively investing in the metaverse.

In the initial quarter, the company took in a history $1 billion in income with its gross profit growing by 56% calendar year in excess of yr to $83.5 million, and its web revenue growing by 86% to $8.9 million. Plus the organization has no credit card debt and $130 million in cash and income equivalents on the textbooks. Few that with its $202 million running dollars stream, and it is really in a solid position to fund additional expansion.

So what is the draw back?

Share dilution was a concern for me at initially and has been the primary motive I have waited to invest in shares in the stock. As eXp steadily troubles a lot more fairness to its brokers, that could dilute the worth of the previously circulating stock. Due to the fact 2015, its share rely has risen by 53%.

But eXp has a application committed to obtaining again shares to retain its share ratios in equilibrium. In Q1, it improved its share repurchase application to $500 million. Right now, it looks effectively outfitted to hold the program heading, although you will find no assurance it could not become a issue in the long run if the brokerage is just not capable to preserve up with share repurchasing.

The firm bought started just just after the Great Recession when serious estate was starting to make a massive comeback. In the final two years in distinct, the housing industry was on hearth, and a record quantity of genuine estate agents acquired their licenses in 2021. But the real estate market seems to be like it’s cooling, and transaction quantity is already dropping.

A slumping true estate marketplace is not great for eXp’s business, but specified its monetary position, it is not a trigger for key issue. Its value-to-earnings ratio is around 24, which is notably better than its true estate brokerage peers, but just one of the firm’s most affordable P/E ratios since going community.  While short-phrase headwinds could gradual the company’s development, I never consider they will be adequate to lead to it to eliminate steam for the extensive haul, which is why I assume it is really a terrific acquire these days.