Redfin (RDFN 8.49%) straddles the market sectors of real estate, finance, and technology -- including artificial intelligence (AI), as Chief Executive Officer Glenn Kelman emphasized in the company's latest earnings call. As a result, Redfin's shareholders are subject to the vicissitudes of several industries.
That's all fine and well until one or more of those industries comes under extreme pressure. Kelman can talk about AI until he's blue in the face, but it won't negate the impact of the Federal Reserve's higher-for-longer interest rate policy or the ultra-tight U.S. housing market.
Indeed, even Kelman had to acknowledge that the U.S. housing market has been less than ideal. Still, after a steep pandemic-propelled share price pop followed by an even more pronounced drop, maybe there's a turn-the-corner opportunity for Redfin and its suffering investors.
From celebrated to decimated
It would be the understatement of the year to say that the world was different five years ago. The pandemic hadn't begun yet, large-cap stocks were riding high on the aftereffects of corporate tax cuts, and Redfin stock traded at about $18.
Then came the pandemic a year later, accompanied by a share-price rout and rally that hardly anyone could have predicted. Speculative fervor took hold on Wall Street, and for a hot minute, Redfin stock actually hit the $100 mark. Its shareholders had ample opportunity to take the money and run.
Then the other shoe dropped in 2021, as a host of macroeconomic factors drove inflation to a peak of 9.1% in June 2022, and the Fed began repeatedly and rapidly hiking interest rates to get rising prices in check. Caught in the middle of the troubles impacting both the financial and real estate sectors, Redfin struggled as the 30-year mortgage interest rate surged from the 3% to 4% range to the 6% to 8% range.
Today, Redfin stock trades at about $6.50, down more than 60% from the $18 a share it traded at five years ago. Hence, a $1,000 investment five years ago would now be worth roughly $360. Amid such challenging conditions and staggering losses, Kelman had little choice but to admit that the U.S. housing market is "dreadful."
Yet perhaps it's slightly less dreadful now than it recently was. Mortgage rates have backed off from their peaks near 8%, and Redfin reported that the U.S. housing market gained $2.4 trillion in value during the past year, reaching $47.5 trillion. That's not blockbuster year-over-year growth, but it's a start.
As for the lingering issue of low housing inventory, Redfin offered a ray of hope on that topic as well. Per the company's research, in the four weeks ended Feb. 25, new listings of U.S. homes for sale increased 13% year over year -- reportedly the biggest increase in almost three years.
Nowhere to go but up?
Even for eager bottom fishers, calling Redfin stock a bargain is difficult to defend. The company has no earnings, and hence no price-to-earnings ratio to cite -- and just because a stock is down, that doesn't necessarily make it a bargain, as anyone who bought Redfin stock at $20 or $10 can attest.
For what it's worth, Redfin is surviving if not thriving amid the housing market's troubles. In the fourth quarter, the company narrowed its net loss to $22.9 million from $61.9 million in the year-earlier quarter.
On the other hand, Redfin expects to incur a net loss of $65 million to $72 million for the current quarter. Just its loss on marketing expenses alone, anticipated to total "approximately $25 million," would be greater than its net loss for Q4 2023.
But then, maybe low expectations can lead to a not-as-bad-as-expected earnings surprise -- and maybe the "nowhere left to go but up" theory could play out in 2024 for Redfin. If you're a risk-taker who truly believes that the Fed will pivot toward rate cuts in the near future, Redfin stock has recovery potential. Just be sure to hedge your bets with proper position sizing because there's certainly no guarantee that the next five years will be any less harrowing for its shareholders than the past five years.
