On this episode of The Five, Jason Hall, Auri Hughes, and Taylor Carmichael talk about one of their favorite high-growth companies that has a super-cheap stock price right now. eXp World (NASDAQ:EXPI) enjoys 182% revenue growth in its most recent quarter. And the stock is trading at two times sales.
This segment was recorded live on August 30.
Jason Hall: Taylor, kick us off here. What's another stock that you've seen fall on a big change in future expectations but you think the market is wrong about how much it's changed its price value on those expectations?
Taylor Carmichael: My stock for that would be eXp World Holdings, their ticker is EXPI.
Jason Hall: The real estate folks.
Taylor Carmichael: Yeah, real estate brokerage that's online. They have no brick-and-mortar office. I'm constantly comparing them to Carvana (NYSE:CVNA). They're like the Carvana of real estate, and they are pulling it off. I feel like they're the strongest internet broker for real estate in the world, and they're growing by leaps and bounds, they're growing really fast, but they're down about 50 percent off their highs. It's a great time for Fools that are interested to research this company. It's gotten really cheap. Just like Carvana, the price to sales ratio is 2. I feel like the market doesn't know how to value companies that are using the Internet to bring value, like they didn't know how to value Amazon for a couple of decades. The market doesn't know how to value Carvana and it doesn't know how to value eXp World. It's giving them a multiple -- it's basically like saying, OK, it's a retailer. It's a used car dealer and it's a real estate broker, and that's all it is. You should have a tiny multiple, that's what Mr. Market says. But I feel like the internet land-grab is such a transformational thing, it's such an important thing. If you grab that mind share, if you grab that market, you have such an advantage that nobody can really take it from you. Carvana is doing that in used cars and eXp World is doing that in houses. They're growing so fast, it's not even funny. They just keep adding countries to their roster because they don't have to open up brick-and-mortar offices so they just get top realtors in the particular area. They've got a powerful economic model that helps them in their recruiting. Say you're a broker at eXp World, any other brokers that you recruit, you get a tiny percentage of their commissions. If the guys you bring in, bring in people, you get a tiny percent of their commissions, and it goes down like six generations. It almost sounds like a pyramid scheme but it's not a pyramid scheme, it's the opposite of that, really. It's basically the power of compound interest. It works like holding the stock for a long time, it just becomes more and more valuable, like being early to a stock is always more valuable than being late to a stock. Being early to eXp World is better than being late to it. So the brokers that are there now are very excited, they're out there recruiting their friends, out there recruiting brokers like that. They're growing by leaps and bounds. Go ahead, sorry.
Auri Hughes: I'm going to use my time to second everything Taylor said.
Jason Hall: I love this. I'm really glad that this is occurring because the theme here is one that I'm right on top of, keep going.
Auri Hughes: Everything Taylor said is right. This is an amazing business model. I'm going to explain a little bit more why I think it's so impactful. There's a movie quote, can you guys name the movie? "Put that coffee down, coffee is for closers."
Taylor Carmichael: Yeah. The freaking four people David Mamet movie. I forget the name of it.
Auri Hughes: The movie is Glengarry Glen Ross. About a group of salesmen. The reason I say that is because eXpI is what they're saying is we want closers. We want veteran agents. The way they've structured their commissions are amazing and hugely in favor of the agent. The way it works is they get an 80/20 split, 80 in favor of the agent. Then after they hit a $16,000 cap, that goes to a 100 percent commission and then they only pay a $250 fee. The reason this is unheard of, this incentivizes their agents. Their agents also get stock-based comp in the company, so you have all these incentives plus a digital-based company. One of the reasons Wall Street misses this is because they say you're paying the agents too much or you're diluting the shares. But that's the thing that makes this business model great, is because it's attracting top agents and closers, people that can essentially sell. It's going to reinforce those economics. This is a model called shared economy scaled, where you lower the price and you incentivize either your customers and employees, and that attracts more employees or more customers. It's a very qualitative model that a lot of Wall Street misses. I think we're still in early innings, and that's why the agents and sales at eXpI has been growing like gangbusters is because of this model. Now let's compare that to a Redfin (NASDAQ:RDFN). Redfin is standing behind their brand. They're paying their agents a salary. That's going to attract people that are newer to the business, want some comfort, but aren't necessarily your hard salesmen, people that can go out and close sales. They're offering a low commission model where eXpI is agent-centric. They're not standing behind their brand or pushing their corporate image. They're just pushing the salespeople going and getting the job done. I think it's one I own, I'm super excited about. The growth is insane and I think it's one I'm very interested in if I haven't captured that. [laughs]
Jason Hall: I'm going to share the messed up expectation on this. Neither of you mentioned it, I think is really the key because it's also affected Zillow (NASDAQ:Z) and Redfin and Opendoor (NASDAQ:OPEN) and some of these others. That's the market with existing properties is entirely focused on this metric here. Inventory. There's no inventory. There's like a million existing homes for sale. That's roughly half of where it normally is. It's improved, but it's still down sharply. Because there's so much interest in buyers, month supply, so converting that into how much inventory it is based on demand is down even more. Investors are saying, that's bad for anybody that's makes money selling existing properties. That's where I think the expectation is so messed up. There's so much opportunity for these disruptors like eXp World Holdings.