Shares of Redfin Corp. sank into record-low territory Monday after Oppenheimer’ Jason Helfstein recommended investors sell, as he explained why he believed the real estate services company has a flawed business model.
The bearish call comes two days before the company is scheduled to report third-quarter results.
dropped as much as 14.7% intraday, before paring some losses to be down 11.7% in morning trading, to put it on track to close below the Oct. 20, 2022 record-low close of $3.93.
It has already plunged 65.8% over the past three months, and 92.9% over the past 12 months, and analyst Helfstein’s new price target suggests it could lose another 63% of its value from current levels.
Helfstein cut his rating to underperform, after being at perform for the past two years. He established a stock price target of $1.30.
“We believe Redfin’s core business is fundamentally flawed with fixed-cost model for agents versus 100% commission for industry,” Helfstein wrote in a note to clients.
He explained that Redfin’s business model prevents the company from optimizing margins when housing markets decline, and prevents it from gaining market share when markets rebound.
That means the company lags the market by six-to-12 months, at a time when surging mortgage rates have led to steep declines in home sales.
Fannie Mae, the government-sponsored enterprise (GSE) that guarantees mortgages, said Monday that its Home Purchase Sentiment Index fell for the eight-straight month in October to 56.7, the lowest reading since the inception of the index in 2011.
“[W]e estimate that it will take ~two years for housing demand to return to meaningful growth,” Helfstein wrote.
The company is scheduled to report quarterly results on Nov. 9, after the closing bell. For the second-quarter, the company reported a wider-than-expected loss and revenue that missed expectations for the first time in nearly five years, according to FactSet.
The company is expected to report a third-quarter loss of 80 cents a share, which would mark a seventh-straight quarterly loss, and revenue that rises about 12% from a year ago to $602.7 million.
The stock has lost 90.8% this year, while shares of rival RE/MAX Holdings Inc. have shed 42.1% and the S&P 500 index
has lost 20.8%.