Redfin Corp. is joining 2023’s rally in beaten-down equities, soaring 99% year-to-date as investors flock to one of the hardest-hit stocks of 2022.
(Bloomberg) — Redfin Corp. is joining 2023’s rally in beaten-down equities, soaring 99% year-to-date as investors flock to one of the hardest-hit stocks of 2022.
Shares of the digital real estate company are off to their best start to a year since Redfin’s initial public offering in 2017, having risen every week but one so far in 2023. Other real estate stocks have also joined the party, with Opendoor Technologies Inc., Compass Inc. and Zillow Group Inc. climbing 73%, 67% and 44% this year, respectively.
That said, it’s important to put Redfin’s gains in context, as the stocks’ eye-popping surge has done little to ease the stock’s longer-term rout. It’s gain from last year’s record low of $3.27 to slightly above $8 now is notable, but that’s nothing compared to its collapse from a high of almost $97 in February 2021. That’s a 91% plunge in two years. It’ll take a much bigger rally to make up for that.
“Redfin is clearly going through a transition period that was brought about by the rapid deterioration of housing market conditions,” William Blair analyst Stephen Sheldon, who holds a market perform rating on the stock, wrote in a note.
Redfin shares lost 6.6% Friday, after the company reported earnings with the housing market downturn continuing to pressure results. Meanwhile, brokerage Re/Max Holdings fell 13.5% following a disappointing first quarter outlook.
“We believe that Redfin is one of only a handful of players that are truly attempting to disrupt the residential home transaction from a consumer’s perspective, and we still believe in the company’s long-term potential, but it may take some time for the story to find its footing with all the changes made in recent quarters,” wrote Sheldon.
Residential real estate stocks and homebuilders were among the hardest-hit industries at the end of 2022 — as builders fell 25% for the year with runaway inflation and economic uncertainty forcing investors to take a risk-off approach and pull their money from real estate. These hard-hit industries have rallied to start the year, with investors hoping a less hawkish Federal Reserve and an ease in mortgage rates will bolster the housing market.
Wall Street bulls are still steering clear of Redfin. The stock has no buy ratings, more than a dozen hold-equivalent and five sell ratings, according to data compiled by Bloomberg. The rally has taken the stock above its average target price of $7.25, pushing the return potential to -15% based on that average.
(Updates prices throughout for market close.)
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