The real estate market saw a massive setback during the COVID-19 outbreak as government-imposed restrictive measures led to a closure of commercial activities and a decline in the need for real estate services. Moreover, the Fed’s aggressive pace of rate hikes amid the ongoing macroeconomic conflicts has resulted in a sharp decline in the demand for houses.
“Demand has completely fallen off the table. Affordability was strained already from the surge in home prices, when you layer on top of that this never-before-seen pace in mortgage rates, it compounds the problem,” Greg McBride, chief financial analyst of Bankrate.com, said.
However, on the bright side, long-term growth prospects for the sector remain strong. Massive digitization and virtual capabilities like drone videos, 3D tours, and digital house hunting are expected to help the global real estate market grow at a 5.2% CAGR from 2022 to 2030.
Given this backdrop, investors could buy real estate stock Guild Holdings Company (GHLD). However, it could be wise to avoid Opendoor Technologies Inc. (OPEN) due to its bleak fundamental positioning.
Stock to Buy:
Guild Holdings Company (GHLD)
GHLD is a mortgage company that originates, sells, and services residential mortgage loans in the United States. It operates approximately 260 branches with licenses in 49 states. The company originates residential mortgages through retail and correspondent channels.
On October 7, GHLD upgraded its 3-2-1 Home, an innovative mortgage program designed to provide first-time homebuyers with a down payment option of as low as 3%. This should enable the company to open more doors for first-time homebuyers and expand its customer base.
GHLD’s net revenue came in at $261.22 million in the fiscal quarter ended September 30, 2022. Net income attributable to GILD was $77.37 million, while its net income per share was $1.26.
Street expects GHLD’s EPS for the fiscal quarter ending June 2023 to come in at $0.43, indicating an increase of 88.8% year-over-year. The $1.73 consensus EPS estimate for the fiscal year ending December 2023 represents a 31.1% year-over-year increase. The company also surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive.
GHLD’s forward P/E multiple of 1.75 is 84.1% lower than the industry average of 11.03. In terms of its forward EV/Sales, the stock is trading at 1.78x, 35.1% lower than the industry average of 2.74x.
The stock gained 10.1% over the past month to close its last trading session at $10.02.
GHLD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
GHLD has an A grade for Quality and a B for Value and Sentiment. It is ranked #1 out of 42 stocks in the Real Estate Services industry.
Beyond what is stated above, we have also rated GHLD for Momentum, Growth, and Stability. Get all GHLD ratings here.
Stock to Avoid:
Opendoor Technologies Inc. (OPEN)
OPEN operates a digital platform for residential real estate in the United States. The company allows customers to buy and sell homes online. Additionally, it offers escrow and title insurance services.
OPEN’s total operating expenses came in at $454 million for the second quarter that ended June 30, 2022, up 46% year-over-year. Also, its total liabilities came in at $7.78 billion for the period ended June 30, 2022, compared to $7.26 billion for the period ended December 31, 2021.
OPEN’s revenue is expected to decrease 36.4% year-over-year to $2.43 billion for the quarter ending December 2022. Its EPS is expected to fall 177.6% year-over-year to negative $0.86 for the same period.
In terms of its trailing-12-month Price/Sales, OPEN is currently trading at 0.06x, 98.7% lower than the industry average of 4.86x. Its trailing-12-month Price/Book multiple of 0.72 is 51.1% lower than the industry average of 1.47.
The stock has lost 91.4% over the past year and 88.4% year-to-date to close the last trading session at $1.69.
OPEN’s POWR Ratings are consistent with this bleak outlook. It has an overall F rating, equating to a Strong Sell in our POWR Ratings system.
The stock also has an F grade for Stability, Sentiment, and Growth and a D for Quality and Momentum. It is ranked #40 in the same industry.
We have also rated OPEN for Value. Get all OPEN ratings here.
GHLD shares were trading at $10.47 per share on Tuesday afternoon, up $0.45 (+4.49%). Year-to-date, GHLD has declined -25.37%, versus a -15.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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