The Federal Reserve has raised interest rates for the seventh time this year, and it lifted the benchmark rate by 0.5 percentage points recently, taking the target rate into a range between 4.25% and 4.5%, the highest level in 15 years. Moreover, the Fed expects interest rates to rise to between 5.1% and 5.4% next year.
This surge in borrowing costs has pummeled demand in the housing market, sidelining potential buyers and even leading some sellers to hold off on listing homes. It is also expected to continue to impact the market in the coming times.
According to Lawrence Yun, chief economist at the National Association of Realtors, home sales will decline by 7% next year, and the national median home price will increase by 1%.
Given the poor prospects of the industry, fundamentally weak real-estate stocks WeWork Inc. (WE), Opendoor Technologies Inc. (OPEN), and Redfin Corporation (RDFN) might be best sold off.
WeWork Inc. (WE)
WE provides flexible workspace solutions to individuals and organizations worldwide. It delivers technology-driven turnkey solutions, flexible spaces, and community experiences. Its product offerings include Core space-as-a-service, WeWork On Demand, WeWork All Access, and WeWork Workplace.
Its trailing-12-month Total Debt/Capital multiple of 116.27% is 138% higher than the industry average of 48.85%.
For the nine months ended September 30, WE’s net cash provided by financing activities decreased 71.3% year-over-year to $407 million. Its cash, cash equivalents, and restricted cash at the end of the period came in at $467 million, down 4.5% from the prior-year quarter. Moreover, its adjusted EBITDA amounted to a negative $451 million.
WE’s EPS is expected to come in at a negative $2.51 for the fiscal year ending December 2022. It has a 24-month beta of 1.99.
Over the past month, the stock has lost 47.6% to close the last trading session at $1.42. It has declined 83.5% year-to-date.
WE’s POWR Ratings reflect this poor prospect. The company has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
WE also have an F grade for Stability and Quality and a D for Value and Sentiment. It is ranked #40 out of 41 stocks in the F-rated Real Estate Services industry.
Click here to access the additional POWR Ratings for Momentum and Growth for WE.
Opendoor Technologies Inc. (OPEN)
OPEN operates a digital platform for residential real estate in the United States. The company’s platform allows consumers to buy and sell a home online. In addition, it offers title insurance and escrow services.
Its trailing-12-month Total Debt/Equity of 542.5% is 470.2% higher than the industry average of 95.15%.
OPEN’s gross loss came in at $425 million for the third quarter that ended September 30, 2022, compared to a gross profit of $202 million in the year-ago period. Its adjusted net loss rose significantly year-over-year to $328 million, while its adjusted EBITDA declined 702.9% year-over-year to negative $211 million.
Street expects OPEN’s revenue to decrease 36.5% year-over-year to $2.43 billion for the fourth quarter ending December 2022. Its EPS is expected to fall 177.6% year-over-year to negative $0.86 for the same quarter.
The stock has lost 90.7% over the past year to close the last trading session at $1.33. It has fallen 22.7% over the past month. It has a 24-monthly beta of 2.52.
As expected, OPEN has an overall F rating, equating to a Strong Sell in our POWR Ratings system.
It has an F grade for Growth, Stability, and Sentiment and a D for Momentum and Quality. It is ranked #39 in the same industry.
In addition to the ratings above, we have also rated OPEN for Value. Get all OPEN ratings here.
Redfin Corporation (RDFN)
RDFN operates as a residential real estate brokerage company in the United States and Canada. The company operates an online real estate marketplace and provides real estate services, including assisting individuals in purchasing or selling homes. It also provides title and settlement services, originates and sells mortgages, and buys and sells homes.
In terms of its trailing-12-month Price/Book, the stock is currently trading at 4.99x, which is 247.2% higher than the industry average of 1.44x. Its trailing-12-month Total Debt/Equity multiple of 1192.9% is significantly higher than the industry average of 95.15%.
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 declined 54.4% year-over-year to $58.08 million, while its net loss increased 376.3% year-over-year to $90.25 million.
RDFN’s EPS is expected to decline 302.5% year-over-year to negative $1.09 in the fiscal fourth quarter ending December 2022. Its revenue for the same quarter is expected to decline 30.3% year-over-year to $448.27 million.
Over the past year, the stock has fallen 87.9% to close the last trading session at $4.95. RDFN has a 24-month beta of 2.58.
Its POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Growth and Sentiment and a D for Stability and Quality. It is ranked last in the same industry.
To see the other ratings of RDFN for Value and Momentum, click here.
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WE shares fell $1.42 (-100.00%) in premarket trading Tuesday. Year-to-date, WE has declined -83.02%, versus a -19.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...
More Resources for the Stocks in this Article
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|OPEN||Get Rating||Get Rating||Get Rating|
|RDFN||Get Rating||Get Rating||Get Rating|