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Why Redfin's Shares Dropped Today

By Joe Tenebruso – Jul 10, 2020 at 6:52PM

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One analyst thinks the discount real estate brokerage's stock has come too far, too fast.

What happened

Shares of Redfin (RDFN 1.20%) fell 7.5% on Friday, following an analyst downgrade.

So what

Citing valuation concerns and economic uncertainty due to the COVID-19 crisis, RBC Capital analyst Mark Mahaney cut his rating on Redfin's stock from "outperform" to "sector perform." He did, however, maintain his $41 target price. 

"Valuation has crept up to an extent we see the risk-reward reasonably balanced, given larger macro uncertainties," Mahaney said. 

A person is pointing to a digital stock chart that rises sharply then falls.

Redfin stock pulled back on Friday. Image source: Getty Images.

Now what

Redfin's stock price plunged during the early stages of the coronavirus pandemic, due in part to investors' concerns that homebuyers would hold off on making purchases during a period of such economic uncertainty. However, its shares rallied to new highs when it became clear that home sales were holding up well in spite of the crisis. Prior to today, Redfin's shares had quadrupled from their March lows. So, it's understandable that Mahaney downgraded the stock after its recent surge on valuation concerns. 

However, long-term investors should keep in mind that Redfin's share of the massive U.S. home-sale market still stands at only around 1%. And it's rapidly gaining market share, thanks to its low fees and convenient online model. So, while its stock could certainly pull back further in the days ahead, Redfin is likely to grow into a far larger business in the coming years.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Redfin. The Motley Fool has a disclosure policy.

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