It was a rough week for three stocks that live and die by the housing market. Shares of Trulia (NYSE: TRLA), Ellie Mae (NYSE:ELLI), and Bankrate (NYSE:RATE) fell 12%, 21%, and 23%, respectively, on the week.
We've been getting mixed signals out of the housing market. Home prices continues to move higher. Mortgage rates are still near historic lows. However, pending home sales have been slipping in recent months, and mortgage originations have also taken a hit, so it's not a coincidence that a couple of banking giants have started to scale back their mortgage-related workforces.
However, all of these recent tailwinds and headwinds don't explain why all three of these stocks suffered double-digit declines. Zillow (NASDAQ:ZG) -- Trulia's larger rival -- closed out the week essentially unchanged. If housing apathy was a definite trend, surely a bellwether like Zillow would've taken a hit. No, Trulia, Ellie Mae, and Bankrate each earned their markdowns by posting uninspiring results on their own.
- Trulia posted strong quarterly results, delivering its second straight profitable quarter after years of red ink. Revenue more than doubled, but that was largely the result of a recent acquisition. However, Trulia did add more real estate pros as subscribers than in any previous period. The stock opened higher initially on the news, but actually closed out the day in negative territory, closing lower every single trading day last week. Valuation concerns are the chief culprit.
- Shareholders told Ellie Mae to "clamp it" -- that's a Beverly Hillbillies reference, yo -- after offering a gloomy outlook. The cloud-based mortgage software solutions provider sees total origination volume slipping 14% to $18 trillion this year, largely as the refi boom has run its course. Ellie Mae's outlook for the current quarter is well short of where the pros were perched.
- Bankrate slipped after missing Wall Street's profit target and announcing that its CEO would be leaving at the end of the year. Stifel Nicolaus downgraded the stock from Buy to Hold on the mixed quarter and the uncertainty of a new CEO after Thomas Evans' successful 10-year reign.
In short, Ellie Mae and Bankrate earned their downticks with disappointing results. Trulia is in the same boat as larger rival Zillow in terms of valuation, but the market wasn't reminded how much its investors are overpaying to own the niche leader last week -- Trulia was the only one in the spotlight. Trulia is fetching 52 times next year's profit target. Zillow trades at an even higher multiple, but having the industry's leading app has its privileges.
Will these three names bounce back? Their fates are tied to the health of the housing market. Bankrate and Trulia rely on visitor traffic that requires potential homebuyers exploring the purchase of property. Ellie Mae isn't a consumer-facing website operator along the lines of Bankrate and Trulia, but it's also at the mercy of new mortgage originations or a recovery in the refinancing boom that is unlikely to happen if interest rates start to head higher, as many are predicting for next year.
All three are quality companies offering dynamic growth potential, but that only applies if interest in housing improves in the future.