Getting to millionaire status by investing in the stock market is easier than many investors think. Consistently investing in the broader S&P 500 index over 20 to 30 years could get you to $1 million alone. But investing strategically in select high-growth stocks can expedite the time to reach $1 million.
Redfin (RDFN -0.33%) is a stock that, for many, fits the bill of being a millionaire-making stock. It has major growth potential through innovative technologies in the rather outdated real estate industry. But does it have what it takes to grow over the long haul and truly reach millionaire status? Let's take a deeper look to find out.
Reshaping the real estate industry
True innovators -- that is, companies reshaping how people consume a product or service -- take time to grow. Think of the internet: Something so intimately entwined in our world today took decades to go mainstream. Apple is one of the most popular stocks today and was publicly traded for 26 years before shares started to soar. Tesla's vision for the future of electric vehicles could take years for the masses to buy into. Redfin is no different.
Redfin's real estate software and technology platform is reshaping how renters, buyers, and sellers interact with the real estate market. Its iBuying program, called RedfinNow, and its Redfin Agent program offer an easier, less expensive way for people to sell or list their homes. And its end-to-end real estate services -- which allow customers to better understand the value of their home, find an agent, shop for homes, get a mortgage, or look for rental properties -- are how it's innovating change in the real estate market.
In 2021, it helped transact roughly 1.17% of all real estate transactions, leaving a lot of room for market share growth. But there's no guarantee it will get there, at least not profitably. Like many tech companies, Redfin's vision requires a lot of capital, and the company isn't profitable yet. Since its initial public offering (IPO), it's been losing money like crazy, and concern is growing over whether its vision can be profitable over the long haul.
Can Redfin get there?
For Redfin to help investors become millionaires, the stock must first become profitable and then gain notable market share. That means generating enough fees from its real estate services (title, mortgage, and agent services, for instance) and earning a larger profit from its iBuying business while also growing its users on a large scale -- which may or may not happen.
The real estate market is showing signs of cooling. Slower sales and lower prices would mean less income for Redfin and put its backlog of homes from its iBuying business in a tough spot. Not good news in the short term.
Long term, however, I do see Redfin continuing to gain popularity, becoming a more widespread solution for buying and selling real estate. However, it won't be easy. It has to compete with Zillow, which offers similar all-in-one solutions. So, Redfin will need to further define how it sets itself apart from others to win market share over the long term.
It does have one thing going for it
Buying when values are low leaves it the best possible scenario for earning more down the road. Right now, its stock price is near its lowest level since its IPO and down 90% from recent highs. Although, if a recession comes and the market cools as anticipated, there is a chance the stock could sink further before growing again.
Given its rock-bottom pricing today, I think it's a fairly affordable investment for risk-averse investors wanting some exposure if the stock goes on to make millions. But keep in mind that $1 million is rarely made with a single investment but rather a diversified portfolio invested in key stocks. Redfin certainly could help you become a millionaire if its vision becomes a reality, but it shouldn't be the only stock you're invested in.