Market sell-offs are no fun for long-term investors, but they're necessary for healthy markets -- and they can present investors with opportunities to invest in stellar companies at excellent prices.
One such company is the multifamily housing lender Walker & Dunlop (WD 1.40%), which finds its stock down 28% year to date. Walker & Dunlop has proven itself with outstanding growth in the last decade, and its recent moves could be setting it up for another decade of success.
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Walker & Dunlop is a top lender in the multifamily housing space
Walker & Dunlop provides financing for apartment buildings and multi-unit houses. It's one of the best in the game, and last year it was the largest such lender in the U.S. when it comes to loans financed through Fannie Mae.
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Walker & Dunlop stands out because of its impressive growth in the multifamily lending space. It focused on scaling the business in the early 2010s, and by 2020 it had diversified the company to bring in multiple streams of income.
Walker & Dunlop grew the total dollar amount of financing it provided for multifamily and other property lending -- its transaction volume -- at an impressive 32% compound annual growth rate (CAGR) in the last decade. This powered growth on the top and bottom lines from 2011 to 2021, with revenue growing at a 24% CAGR, and diluted earnings per share (EPS) growing at an 18% CAGR.
Favorable tailwinds could help it take market share
Walker & Dunlop put up another stellar quarterly earnings report in the first quarter, as total transaction volume grew 40% from the first quarter to $12.7 billion. Its revenue grew 42% from last year to $319 million, while diluted EPS increased 18%.
Most loans in the multifamily space tend to be shorter-terms of up to 10 years, with a lump sum payment at the end of the loan. Rather than paying that lump sum, most borrowers choose to refinance their loan at the end of the term. Management at Walker & Dunlop has highlighted tailwinds to the business in the coming years, which the company calls a "wave of maturities." There will be hundreds of billions of dollars in multifamily loans maturing in the next five years, which Walker & Dunlop is looking to finance and grow its market share.
Image source: Walker & Dunlop.
Walker & Dunlop isn't sitting around waiting for this wave of maturities, though. The company has spent a significant amount of cash acquiring businesses to power the next phase of growth. The company purchased Alliant Capital for nearly $700 million at the end of 2021, one of the largest acquisitions in its history. The deal gives Walker & Dunlop, already the fifth-largest affordable housing lender in the U.S., an even stronger foothold in that sector, which should help it reach its goal of originating $60 billion of affordable housing loans in the next five years. It also expects Alliant to be a positive contributor right away, adding $90 million to $100 million in annual revenue while adding $0.45 to $0.60 in diluted EPS.
A cheap price tag for the fast-growing company
Walker & Dunlop is a well-run lender that has done a stellar job of expanding its business. Under the leadership of CEO Willy Walker, the company has delivered stellar returns of 896% over the last decade, beating the S&P 500's return of 280% in the same time.
However, the stock has gotten beaten up along with the broader market, and it's down nearly 29% year to date. After seeing its price-to-earnings ratio (P/E) peak at 18.7 last year, Walker & Dunlop now trades at 12.5 times earnings.
While this is on par with its 10-year average P/E, the stock has delivered excellent growth and is well-positioned to keep taking market share. As long as Walker & Dunlop keeps executing its vision, it should be a solid stock to buy and hold for the next decade.
