Home buying sentiment has been improving lately. Moreover, declining mortgage rates should further support the real estate industry. Given the sound prospects of the real estate sector, investors could consider buying quality real estate stock, AMREP (AXR). However, WeWork (WE) and Opendoor Technologies (OPEN) might be best avoided considering their weak fundamentals. Keep reading.
Amid the Fed’s consecutive rate hikes, home buying sentiment deteriorated significantly. However, conditions have improved of late. The Fannie Mae Home Purchase Sentiment Index® (HPSI) increased by 3.7 points in December 2022 to 61.0.
Doug Duncan, Fannie Mae Senior Vice President and Chief Economist said, “In December, the HPSI inched upward slightly, as consumers reported increased expectations that mortgage rates and home prices may decrease over the next year – perhaps reflecting recently observed declines in mortgage rates and average home prices.”
Moreover, mortgage rates decreased significantly over the past week. According to data from Freddie Mac, the 30-year fixed-rate mortgage averaged 6.09% in the week ending February 2, 2023, down from 6.13% the week before. This should foster the near-term home-buying sentiment.
In addition, the industry’s long-term growth prospects seem promising. The global real estate market is expected to grow at a CAGR of 7% until 2027.
Therefore, investors could consider buying quality real estate stock, AMREP Corporation (AXR). However, WeWork Inc. (WE) and Opendoor Technologies Inc. (OPEN) might be best avoided now, considering their weak fundamentals.
Stock to Buy:
AMREP Corporation (AXR)
AXR primarily engages in the real estate business through two segments, Land Development, and Homebuilding.
AXR’s net income margin of 25.98% is 57.9% higher than the industry average of 16.46%. Also, its ROCE of 17.94% compares with the industry average of 5.17%.
Its trailing-12-month P/E of 5.14x is 81.9% lower than the industry average of 28.44x, while its trailing-12-month EV/Sales multiple of 0.94 is 90.7% lower than the industry average of 10.13.
For the fiscal quarter ended October 2022, AXR’s total revenues increased marginally from the year-ago period to $16.15 million. Its operating income came in at $4.47 million, indicating an increase of 2.6% year-over-year. AXR’s net income and EPS came in at $3.62 million and $0.68, reflecting an increase of 8.9% and 51.1% from the prior-year quarter.
AXR shares have gained 12.5% over the past month to close the last trading session at $13.50.
It’s no surprise that AXR has an overall B rating, equating to Buy in our proprietary POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has a B grade for Value and Sentiment. AXR is ranked #2 out of the 42 stocks in the Real Estate Services industry.
Click here to see additional ratings for Growth, Momentum, Quality, and Stability for AXR.
Stocks to Avoid:
WeWork Inc. (WE)
WE provide 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 All Access, WeWork On Demand, and WeWork Workplace.
WE’s trailing-12-month EBITDA margin of negative 26.46% is lower than the industry average of 55.55%. Its trailing-12-month net income margin of negative 73.67% compares with the industry average of 16.46%.
WE’s cash and cash equivalents came in at $460 million for the period ended September 30, 2022, compared to $924 million for the period ended December 31, 2021, while its long-term net debt came in at $1 billion compared to $666 million. Net loss attributable to WE and net loss per share in the third quarter ended September 2022 came in at $568 million and $0.75.
WE’s EPS is expected to remain negative this year. It has lost 74.3% over the past year to close the last trading session at $1.87.
WE’s POWR Ratings reflect its poor prospects. It has an overall F grade, equating to a Strong Sell in our proprietary rating system.
It has an F for Stability and Quality and a D for Value and Sentiment. It is ranked #41 in the same industry. To see WE ratings for Growth and Momentum, click here.
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.
OPEN’s negative EBIT Margin of 4.60% is lower than the industry average of 23.42%, and its negative net income margin of 6.93% compares with the industry average of 16.46%.
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 net loss came in at $928 million, up 1528.1% year-over-year, while its loss per share came in at $1.47, up 1533.3% year-over-year.
Street expects OPEN’s revenue to decrease 49.8% year-over-year to $2.59 billion for the quarter ending March 2023. Its EPS is expected to fall 1675% year-over-year to negative $0.63 for the same period. It missed EPS estimates in three out of four trailing quarters. The stock has lost 75.6% over the past year to close the last trading session at $2.36.
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 Quality and Momentum. It is ranked #40 in the same industry. We have also rated OPEN for Value. Get all the OPEN ratings here.
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AXR shares were unchanged in premarket trading Wednesday. Year-to-date, AXR has gained 16.88%, versus a 8.57% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master’s degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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