Equity markets experienced a pullback on Monday after it was revealed that China-based real estate giant Evergrande (OTC: EGRNY) has precarious financials. Several indices including the S&P 500 lost over 2.5% as Evergrande failed to pay $80 million in interests that were due on September 20.
There is a good chance for the company to miss another bond payment due this week and it’s quite evident that Evergrande is staring down the barrel given it carries $300 billion in debt on its balance sheet.
This may severely impact China’s real estate and financial services market and the after-shocks may be felt all over the world.
While investing in capital-intensive companies such as Evergrande carries significant risks, it makes sense to buy stocks that are disrupting the real estate space. Here, we look at three stocks that should be on the radar of real estate investors right now.
A company valued at a market cap of $3 billion, Offerpad Solutions (NYSE: OPAD) purchases, sells, rents and renovates properties in the U.S. It offers iBuying, a real estate solutions platform that enhances the home selling experience for homeowners.
Offerpad is forecast to increase its sales from $856 million in 2018 to $1.78 billion in 2021, indicating an annual growth rate of 28%. It sold close to 4,300 homes last year and expects this figure to rise close to 6,000 in 2021. However, the company has managed to increase its revenue generated per home to $31,500 in Q2 of 2021, up from $1,400 in the year-ago period.
A low-interest rate environment spurred housing demand which in turn led to higher prices. While Offerpad has managed to benefit from favorable market conditions, the company is expanding at a stellar pace and is poised to gain from economies of scale going ahead.
Offerpad stock is down 30% from all-time highs and is a top bet for contrarian and growth investors.
Similar to Offerpad, Redfin (NASDAQ: RDFN) is also operating a direct-buying platform and attracts potential homeowners with a low listing fee that stands at 1%. The company claims to have saved over a billion dollars in listing fees since its inception.
Redfin accounted for 0.81% of total homes sold in the U.S. and this figure rose to 1.18% at the end of Q2. It sold 583 homes in the last 12-months via direct buying. However, in Q2 this figure stood at 292, indicating a year-over-year rise of 80%.
Redfin has increased its sales from $370 million in 2017 to $886 million in 2020. Analysts expect sales to more than double to $1.78 billion this year and increase by 31% to $2.34 billion in 2022.
In the second quarter of 2021, the company increased sales by 121% year over year while gross profits soared by 174%.
The final stock on my list is Zillow Group (NASDAQ: Z) which is currently valued at a market cap of $24.3 billion. Zillow is projected to grow its sales from $1.33 billion in 2018 to $6.6 billion in 2021, indicating an annual growth rate of 70%. Its top-line growth is driven by the company’s expanding suite of solutions that includes nine brands such as Premier Agent, Zillow Closing and Zillow Home Loans.
While Zillow Closing provides title and escrow services, Premier Agent is a SaaS-based broker platform and Zillow Home Loans provides in-house mortgage services. While the first two companies are still reporting an adjusted loss, Zillow is forecast to increase earnings from $0.44 in 2020 to $1.17 this year.
Analysts expect Zillow stock to touch $165 in the next 12-months which is almost 70% higher than its current trading price.
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