Residential real estate brokerage company Redfin Corporation (RDFN - Get Rating) recently declared the closure of its home-flipping unit RedfinNow. Moreover, it dismissed 13% of its staff, citing deteriorating demand in the housing market.

Earlier in June 2022, RDFN laid off 8% of its workforce. According to RDFN’s CEO Glenn Kelman, “a layoff is awful, but we can’t avoid it.” Oppenheimer analyst Jason Helfstein downgraded the stock stating that the company’s model was “fundamentally flawed.”

Amid consecutive federal rate hikes, the percentage share of first-time home buyers has dropped to a record low of 26% from a historical average of 40%. Also, The Fed Chair, Jerome Powell, recently referred to the housing market as “very overheated.” 

Declining home buying sentiment might create further hurdles for RDFN in the near future. However, RDFN has gained 18.1% over the past month to close the last trading session at $4.60. It has lost 87.4% year-to-date and 89.5% over the past year.

Here is what could shape RDFN’s performance in the near term:

Weak Financials

RDFN’s service revenue came in at $300.85 million for the third quarter that ended September 30, 2022, down marginally year-over-year. Its gross profit came in at $58.08 million, down 54.4% year-over-year. Also, its net loss came in at $90.25 million, up 376.3% year-over-year.

Moreover, its cash and cash equivalents came in at $359.72 million for the period ended September 30, 2022, compared to $591 million for the period ended December 31, 2021.

Mixed Analyst Sentiment

For 2022, analysts expect RDFN’s revenue to increase 17.7% year-over-year to $2.26 billion. However, its revenue is expected to decline 29.1% year-over-year to $456.09 million for the quarter ending December 2022 and 43.3% year-over-year to $1.28 billion in 2023.

Its EPS is expected to decline 274.1% year-over-year to negative $1.01 for the quarter ending December 2022 and 204.5% year-over-year to negative $3.41 in 2022.

Poor Profitability

RDFN’s trailing-12-month gross profit margin of 14.57% is 78.6% lower than the industry average of 68.11%. Its trailing-12-month EBITDA margin of negative 7.31% is lower than the industry average of 56.34%, while its trailing-12-month net income margin of negative 11.69% is lower than the industry average of 17.19%.

POWR Ratings Reflect Bleak Prospects

RDFN has an overall rating of F, equating to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

RDFN has an F grade for Quality, consistent with its negative profitability margins. It has a C grade for Value. Its trailing-12-month Price/Sales of 0.21x is 95.6% lower than the industry average of 4.86x, while its trailing-12-month Price/Book of 4.90x is 235.5% higher than the industry average of 1.46x.

It has an F grade for Stability, in sync with its 24-month beta of 2.54.

In the 42-stock Real Estate Services industry, RDFN is ranked last.

Click here for the additional POWR Ratings for RDFN (Growth, Momentum, Sentiment).

View all the top stocks in the Real Estate Services industry here.

Bottom Line

RDFN reported bleak financials in its latest quarter. Moreover, the stock is trading below its 50-day and 200-day moving averages of $5.47 and $11.94, respectively. Given its negative profitability and the dull outlook of the housing market, RDFN might be best avoided.

How Does Redfin Corporation (RDFN) Stack up Against Its Peers?

While RDFN has an overall POWR Rating of F, one might consider looking at its industry peers, Guild Holdings Company (GHLD - Get Rating), Comstock Holding Companies, Inc. (CHCI - Get Rating), and AMREP Corporation (AXR - Get Rating), which have an overall B (Buy) rating.

RDFN shares were trading at $4.76 per share on Wednesday afternoon, down $0.08 (-1.65%). Year-to-date, RDFN has declined -87.60%, versus a -15.84% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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