The real estate industry felt the brunt of the Fed’s interest rate hikes last year. However, the industry’s prospects look bright. So, quality real estate stocks Guild Holdings Company (GHLD), The RMR Group Inc. (RMR), and AMREP Corporation (AXR) could be worth buying.
Fannie Mae’s overall home sales projection was revised slightly upward. The expected total sales for 2023 have been revised upward to 4.86 million units from 4.84 million units.
Moreover, mortgage rates decreased significantly over the past weeks. According to data from Freddie Mac, the 30-year fixed-rate mortgage averaged 6.69% in the week ending June 15, 2023, down from 6.71% the week before. This should foster the near-term home-buying sentiment.
Sam Khater, Freddie Mac’s chief economist, said, “Mortgage rates decreased slightly this week in anticipation of the pause in rate hikes by the Federal Reserve. As inflation continues to decelerate, economic growth is slowing, and the tightening cycle of monetary policy is reaching its apex, which means mortgage rates are expected to decrease later this year and into next.”
In addition, the industry’s long-term growth prospects seem promising. The global real estate market is expected to grow at a CAGR of 5.2% until 2030.
Let us look deeper into the fundamentals of the featured stocks.
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.
GHLD’s forward Price/Book multiple of 0.61 is 37.5% lower than the industry average of 0.97. Its forward Price/Sales multiple of 1.09 is 51.2% lower than the industry average of 2.24.
GHLD’s trailing-12-month levered FCF margin of 67.47% is 339.3% higher than the industry average of 15.36%. Its trailing-12-month ROTA of 2.62% is 133.7% higher than the industry average of 1.12%.
For the first quarter that ended March 31, 2023, GHLD’s total expenses decreased marginally year-over-year to $154.69 million. Also, its total liabilities came in at $1.97 billion for the period that ended March 31, 2023, compared to $1.99 billion for the period that ended December 31, 2022.
The consensus revenue estimate of $883.48 million for the year ending December 2024 represents a 31.5% increase year-over-year. Its EPS is expected to grow 181.4% year-over-year to $1.56 for the same period. GHLD’s shares have gained 21.5% over the past year to close the last trading session at $12.32.
GHLD’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GHLD has an A grade for Sentiment and Quality and a B for Value. Within the Real Estate Services industry, it is ranked first among 42 stocks. Click here for the additional POWR Ratings for Stability, Growth, and Momentum for GHLD.
The RMR Group Inc. (RMR)
RMR through its subsidiary, The RMR Group LLC, provides business and property management services in the United States.
RMR’s forward non-GAAP P/E multiple of 12.06 is 61.4% lower than the industry average of 31.26. Its trailing-12-month EV/EBIT multiple of 4.59 is 86.4% lower than the industry average of 33.79.
RMR’s trailing-12-month asset turnover ratio of 0.36x is 182% higher than the industry average of 0.13x.
RMR’s total revenues increased 5.4% year-over-year to $208.42 million for the fiscal second quarter that ended March 31, 2023. The company’s net income and EPS came in at $18.47 million and $1.11, up 189% and 184.6% year-over-year, respectively.
Analysts expect RMR’s revenue to increase 11% year-over-year to $923.82 million for the year ending September 2023. Its EPS is expected to grow at 17.9% year-over-year to $2.41 for the same period. The stock has gained 6% over the past month to close the last trading session at $23.38.
RMR’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #3 in the same industry. It has a B grade for Sentiment, Momentum and Quality. To see additional RMR’s ratings for Stability, Value, and Growth, click here.
AMREP Corporation (AXR)
AXR primarily engages in the real estate business through two segments, Land Development, and Homebuilding.
Its trailing-12-month EV/EBITDA of 3.41x is 79.8% lower than the industry average of 16.90x, while its trailing-12-month EV/EBIT multiple of 3.42 is 89.9% lower than the industry average of 33.79.
AXR’s trailing-12-month ROCE of 31.68% is 626.9% higher than the industry average of 4.36%. Also, its trailing-12-month ROTA of 28.37% is significantly higher than the industry average of 1.96%.
For the third quarter ended January 31, 2023, AXR’s net income and EPS came in at $16.57 million and $3.12, up significantly from their year-ago values.
Also, its total assets came in at $113.40 million for the period that ended January 31, 2023, compared to $94.92 million for the period that ended April 30, 2022. Its total liabilities came in at $5.76 million, compared to $11.76 b million in the same period.
AXR shares have gained 57.4% over the past year to close the last trading session at $17.23.
AXR has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Value. It is ranked #2 in the same industry.
Beyond what is stated above, we’ve also rated AXR for Stability, Sentiment, Growth, Momentum and Quality. Get all AXR ratings here.
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GHLD shares were unchanged in premarket trading Thursday. Year-to-date, GHLD has gained 22.10%, versus a 14.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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