The Real Brokerage’s stock price has taken a beating over the past six months, shedding 32.9% of its value and falling to $2.61 per share. This may have investors wondering how to approach the situation.
Is now the time to buy The Real Brokerage, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think The Real Brokerage Will Underperform?
Even though the stock has become cheaper, we're swiping left on The Real Brokerage for now. Here are three reasons you should be careful with REAX and a stock we'd rather own.
1. Breakeven Operating Margin Raises Questions
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
The Real Brokerage’s operating margin has generally stayed the same over the last 12 months. The company broke even over the last two years, inadequate for a consumer discretionary business. Its large expense base and inefficient cost structure were the main culprits behind this performance.
2. EPS Barely Improving
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Although The Real Brokerage’s full-year earnings are still negative, it reduced its losses and improved its EPS by 8.9% annually over the last four years. The next few quarters will be critical for assessing its long-term profitability.
3. Free Cash Flow Projections Disappoint
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Over the next year, analysts’ consensus estimates show they’re expecting The Real Brokerage’s free cash flow margin of 3.3% for the last 12 months to remain the same.
Final Judgment
The Real Brokerage doesn’t pass our quality test. After the recent drawdown, the stock trades at 6.4× forward EV-to-EBITDA (or $2.61 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are better stocks to buy right now. Let us point you toward one of our all-time favorite software stocks.
Stocks We Would Buy Instead of The Real Brokerage
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