Formerly known as HF Enterprises Inc., Alset EHome International Inc. (AEI - Get Rating) in Bethesda, Md., does business in property development, digital transformation technology, and biohealth. Its shares soared to hit their all-time $29.49 price high on February 16, 2021, amid the red-hot housing market. The stock has gained 65.8% over the past month to close Friday’s trading session at $3.05.

On July 27, AEI made a Sales of Goods Agreement with Puradigm LLC to secure innovative and patented air and surface purification solutions integrated into its eco-friendly single-family home communities. AEI’s subsidiary, American Pacific Bancorp, Inc., completed a subscription agreement with Document Security Systems, Inc. (DSS) on September 9. As a result, DSS became the majority owner of American Pacific Bancorp, acquiring 50% of its outstanding shares of common stock.

AEI’s shares have lost 40.2% in price over the past three months and 77.9% over the past six months. Moreover, hedge funds don’t have a meaningful investment in the stock. So, AEI’s near-term prospects look bleak.

Here are the factors that could influence AEI’s performance in the coming months:

Industry Headwinds

Housing prices have been skyrocketing globally, thanks to low inventory and high demand. As prices have gone beyond the affordability of many buyers, companies like AEI are expected to be negatively impacted. AEI has operations across the United States, Singapore, Hong Kong, Australia, and South Korea.

Analysts warned that home buyers in Singapore should beware the risk of rising interest rates. South Korea hiked interest rates for the first time in three years in August. Hong Kong private home prices also surged 0.46% in July. However, according to a CNBC report, investor Peter Boockvar warned that the “Federal Reserve is stoking another real estate price bubble that will wipe out home equity.” Moreover, according to Norada real estate investments report, housing market growth is expected to slow to 4.4% in 2022.

Weak Financials

For the quarter, ended June 30, 2021, AEI’s total revenue increased 216.7% year-over-year to $6.54 million. However, the company’s total operating expenses increased 167.8% year-over-year to $11.22 million. While its losses from operations came in at $4.68 million, up 120.1% year-over-year, its net loss increased 2,976.2% year-over-year to $74.89 million. Also, its loss per share was $6.03, representing a 4,925% year-over-year rise.

Selling Shares to Fund Growth Activities

On July 30, AEI raised roughly $32 million, completing an underwritten public offering of more than five million shares and pre-funded warrants. The company is expected to use the proceeds for general growth purposes. In addition, it granted the underwriters a 45-day option to purchase additional shares of common stock. However, its shares plunged 35% after the public offering announcement on July 27 on possible share dilution concerns.

POWR Ratings Reflect Bleak Prospects

AEI has an overall d rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. Out of these categories, AEI has an F grade for Stability.

The stock has a D grade for Quality, which is consistent with AEI’s 38.36% trailing-12-month gross profit margin, which is 42.1% lower than the 66.26% industry average. Also, its trailing-12-month ROCE, ROTC, and ROTA are negative compared to the industry averages of 3.66%, 1.86%, and 1.86%, respectively.

AEI is ranked #40 of 45 stocks in the D-rated Real Estate Services industry. Click here to see the additional POWR Ratings for AEI (Value, Growth, Momentum, and Sentiment).

Bottom Line

Microcap AEI is a lesser-known company in the real estate development industry. While its top line increased in the last quarter, its losses widened significantly. Moreover, the public offering news was not well received by investors as it could lead to share dilution. So, we think it could be wise to avoid the stock now.

How Does Alset EHome International (AEI) Stack Up Against its Peers?

AEI has an overall POWR Rating of D, which equates to a Sell rating. So, one  might want to consider investing in A-rated (Strong Buy) stocks in the same industry, such as Newmark Group, Inc. (NMRK - Get Rating) and Marcus & Millichap, Inc. (MMI - Get Rating).

AEI shares fell $0.24 (-7.87%) in premarket trading Monday. Year-to-date, AEI has declined -53.18%, versus a 16.77% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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