Record low mortgage rates during the pandemic meant people bought and flipped houses. The high demand for housing meant that real estate services were also in high demand. However, the demand for real estate services slowed due to rising mortgage rates and high inflation.
However, as mortgage rates continue to fall along with declining home prices, the real estate services industry is expected to remain robust. Amid this backdrop, it could be wise to buy fundamentally strong real estate stocks Guild Holdings Company (GHLD), The RMR Group Inc. (RMR), and AMREP Corporation (AXR).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the real estate services market is expected to grow.
For the week ending June 22, 2023, mortgage rates declined for the third consecutive week as it hit 6.67% for the average 30-year fixed-rate mortgage. Moreover, median listing prices for the week ending June 17, 2023, were 0.9% lower than the year-ago period. Additionally, for the week ending June 16, the overall volume of mortgage applications rose 0.5% over the prior-week total.
Realtor.com economist Jiayi Xu said, “This decrease in listing prices presents potential opportunities for homebuyers, especially considering the larger number of homes available compared to the same time last year.” Fannie Mae revised its estimate of overall home sales from 4.84 million units to 4.86 million units in 2023.
The global real estate market is projected to grow at a CAGR of 5.2% to reach $6.13 trillion by 2030. Moreover, investors’ interest in real estate stocks is evident from iShares Residential and Multisector Real Estate ETF’s (REZ) 7.4% returns over the past three months.
Let’s take a closer look at the fundamentals of the featured stocks.
Guild Holdings Company (GHLD)
GHLD sells and services residential mortgage loans. It operates in two segments, Origination and Servicing. The company originates residential mortgages through retail and correspondent channels.
On March 13, 2023, GHLD acquired mortgage lending company Cherry Creek Mortgage, LLC. GHLD CEO Mary Ann McGarry said, “This is a very strategic offensive move for us. Guild’s values, commitment to serving their associates, customers and the industry are perfectly aligned with what we have built over the last 36 years.”
“We believe the combined resources of both companies will make us a force in the marketplace and position our production teams to more readily compete and win for the long term in this challenging market,” she added.
In terms of the trailing-12-month gross profit margin, GHLD’s 100% is 69.8% higher than the 58.91% industry average. Likewise, its 67.47% trailing-12-month levered FCF margin is 335.4% higher than the 15.50% industry average. Furthermore, the stock’s 0.24x trailing-12-month asset turnover ratio is 21% higher than the 0.20x industry average.
GHLD’s revenues for the first quarter ended March 31, 2023, came in at $103.89 million. The company’s adjusted EBITDA came in at $1.1 million.
For the quarter ending December 31, 2023, GHLD’s revenue is expected to increase 45.4% year-over-year to $195.27 million. Its EPS for fiscal 2024 is expected to increase 181.4% year-over-year to $1.56. Over the past nine months, the stock has gained 24% to close the last trading session at $11.81.
GHLD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Sentiment and Quality and a B for Value. Within the Real Estate Services industry, it is ranked first out of 42 stocks. To see GHLD’s rating for Growth, Momentum, and Stability, click here.
The RMR Group Inc. (RMR)
RMR, through its subsidiary, The RMR Group LLC, provides business and property management services. The company offers management services to its four publicly traded real estate investment trusts and three real estate operating companies. It also provides investment advisory and administrative services.
On May 10, 2023, RMR announced the execution of 65 leases totalling 1.9 million square feet for clients during the first quarter. This included 28 leases with new tenants covering 433,000 square feet. The leases had an average rent increase of 1% and an average term of 9.1 years.
RMR’s President & CEO Adam Portnoy said, “Despite a challenging economic environment for commercial real estate. RMR achieved strong leasing activity of 1.9 million square feet while maintaining relatively flat rent rates, ending the quarter with a combined occupancy rate of nearly 96%.”
In terms of the trailing-12-month EBIT margin, RMR’s 42.94% is 100.6% higher than the 21.41% industry average. Likewise, its 21.91% trailing-12-month net income margin is 76.9% higher than the 12.39% industry average. Furthermore, the stock’s 0.36x trailing-12-month asset turnover ratio is 182% higher than the 0.13x industry average.
For the fiscal second quarter ended March 31, 2023, RMR’s total revenues rose 5.4% year-over-year to $208.42 million. Its adjusted net income attributable to RMR and adjusted EPS came in at $8.11 million and $0.49, respectively. Also, the company’s adjusted EBITDA came in at $25.30 million.
Street expects RMR’s EPS for fiscal 2023 to increase 17.9% year-over-year to $2.41. Its revenue for the quarter ending June 30, 2023, is expected to increase 7.8% year-over-year to $227.52 million. Over the past month, the stock has gained 7.5% to close the last trading session at $23.30.
RMR’s POWR Ratings are consistent with this positive outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Momentum, Sentiment, and Quality. It is ranked #2 in the same industry. Click here to see RMR’s ratings for Growth, Value, and Stability.
AMREP Corporation (AXR)
AXR, through its subsidiaries, primarily engages in the real estate business. The company operates through two segments, Land Development, and Homebuilding. The company sells developed and undeveloped lots to homebuilders, commercial and industrial property developers, and others.
In terms of the trailing-12-month EBIT margin, AXR’s 36.30% is 69.6% higher than the 21.41% industry average. Likewise, its 50.91% trailing-12-month net income margin is 310.9% higher than the 12.39% industry average. Furthermore, the stock’s 0.58x trailing-12-month asset turnover ratio is 350.8% higher than the 0.13x industry average.
AXR’s total revenues for the fiscal third quarter ended March 31, 2023, came in at $9.12 million. The company’s net income rose considerably year-over-year to $16.57 million. In addition, EPS rose significantly year-over-year to $3.12.
Over the past year, the stock has gained 62% to close the last trading session at $17.93.
The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B for Value. It is ranked #2 in the Real Estate Services industry. For AXR’s ratings for Growth, Momentum, Stability, Sentiment, and Quality, click here.
What To Do Next?
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GHLD shares were trading at $11.60 per share on Tuesday morning, down $0.21 (-1.78%). Year-to-date, GHLD has gained 14.97%, versus a 14.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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