Volatile markets are stuffed with shopping for alternatives. The inventory market as an entire, as measured by the broad S&P 500 index, is down by about 17% to this point this 12 months, however high-growth tech shares are down much more drastically. That means there are a great deal of shares on sale proper now which have a lot of potential.
One actual property inventory that I have been watching carefully is eXp World Holdings (NASDAQ: EXPI), the primary and solely 100% digital brokerage. It’s altering the actual property brokerage sport by providing a brand new — and in lots of respects, higher — means for brokers to do enterprise.
Because of the tech sell-off earlier this 12 months and rising concern over the beginning of the actual property market, the inventory is down greater than 80% from its 2021 excessive after it acquired crushed together with a lot of different development and tech shares. With such a steep drop, let’s take a better take a look at if this firm is a purchase.
Revolutionizing the brokerage enterprise
In contrast to established actual property brokerages like Remax, Keller Williams Realty, or Coldwell Banker Actual Property, eXp World Holdings has no bodily workplaces. It operates 100% remotely and within the cloud. All the things from conferences and coaching to advertising and marketing assets and shutting procedures is dealt with on-line. However that is not the one factor that makes the corporate completely different.
It passes the financial savings of getting no hire or workplace overhead on to its brokers. Most brokerages supply brokers a 60/40 break up on every transaction — the brokerage will get 40% of the gross sales fee. Against this, eXp presents a way more beneficiant 80/20 break up.
The corporate additionally has tons of incentives, together with a revenue-sharing construction that enables its brokers to earn a share of the gross sales made by brokers they recruited. It additionally has caps on how a lot brokers must pay the brokerage after a sure gross sales quantity is reached, in the end permitting brokers to earn extra the extra transactions they conduct.
This distinctive construction is exactly why the corporate is the quickest rising brokerage on the earth proper now, with over 80,000 brokers in its community on six continents. Since 2016, the variety of brokers in its community has grown at an annualized charge of 55%, and it’s nonetheless increasing.
Can eXp continue to grow?
The corporate’s enterprise mannequin is clearly interesting to brokers, however can it continue to grow? I really feel there are plenty of causes it could. Its incentive-based recruitment program motivates brokers to stay with eXp for the lengthy haul as a result of it offers them with further passive earnings.
Brokers additionally obtain stock-based incentives as an alternative of financial bonuses for reaching sure milestones, which additional motivates them to stay round as shareholders. The corporate is increasing into new nations. Its newest market is Chile, and this month, it closed its acquisition of Canada-based Zoocasa Realty — a client actual property search portal and brokerage — to assist enhance its lead sources for its brokers. It is also actively investing within the metaverse.
Within the first quarter, the corporate took in a report $1 billion in income with its gross revenue rising by 56% 12 months over 12 months to $83.5 million, and its internet earnings growing by 86% to $8.9 million. Plus the corporate has no debt and $130 million in money and money equivalents on the books. Couple that with its $202 million working money circulate, and it is in a robust place to fund additional development.
So what is the draw back?
Share dilution was a priority for me at first and has been the first cause I’ve waited to purchase shares within the inventory. As eXp steadily points extra fairness to its brokers, that might dilute the worth of the beforehand circulating inventory. Since 2015, its share depend has risen by 53%.
However eXp has a program devoted to purchasing again shares to maintain its share ratios in stability. In Q1, it elevated its share repurchase program to $500 million. Proper now, it appears nicely outfitted to maintain this system going, although there isn’t any assure it could not grow to be an issue sooner or later if the brokerage is not in a position to sustain with share repurchasing.
The corporate acquired began simply after the Nice Recession when actual property was beginning to make an enormous comeback. Within the final two years particularly, the housing market was on hearth, and a report variety of actual property brokers acquired their licenses in 2021. However the actual property market seems prefer it’s cooling, and transaction quantity is already dropping.
A slumping actual property market is not good for eXp’s enterprise, however given its monetary place, it isn’t a trigger for main concern. Its price-to-earnings ratio is round 24, which is notably greater than its actual property brokerage friends, however one of many firm’s lowest P/E ratios since going public. Whereas short-term headwinds might gradual the corporate’s development, I do not suppose they are going to be sufficient to trigger it to lose steam for the lengthy haul, which is why I feel it is an important purchase in the present day.
10 shares we like higher than eXp World Holdings
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Liz Brumer-Smith has no place in any of the shares talked about. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure coverage.
The views and opinions expressed herein are the views and opinions of the creator and don’t essentially replicate these of Nasdaq, Inc.