Redfin Stock: Why This Real Estate Company Could Be the Next Big Disruptor

Redfin stock
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Redfin Aims to Disrupt the Real Estate Sector

What if you could buy shares of the next big disruptor?

Right now there’s a company that has its sights on disrupting the way real estate is transacted—similar to how Amazon.com, Inc. (NASDAQ:AMZN) disrupted the way people buy consumer goods.

A small-cap stock that you may want to place on your watchlist for possible inclusion is Redfin Corp (NASDAQ:RDFN).

Approaching the first anniversary of its initial public offering (IPO) at $15.00 on July 27, 2017, RDFN stock is up 65% from that IPO price—but down 21% this year and well off of its high of $33.49.

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Redfin uses technologies such as artificial intelligence and big-data analytics to help consumers buy and sell real estate.

The fact that Redfin employs advanced technology is not a surprise, given that the upstart company was started by software engineers.

Redfin provides its services in over 80 markets, and so far it has been involved in 120,000 home sales, with a total value of more than $60.0 billion. Over 20 million users are on Redfin’s site each month.

My bull thesis for RDFN stock is based on the demands of millennials who prefer the use of technology in everything they do. This, I feel will be a major driver for the stock.

The following Redfin stock chart shows the stock price drifting between support at $20.00 and resistance at $28.00, but could be set for a leg up once the stock gains traction.

Chart courtesy of StockCharts.com

RDFN Stock Could Be the Next Big Game Changer

The revenue picture for Redfin has been impressive so far, with revenue increasing in three straight years.

Revenue rose from $125.4 million in 2014 to $370.0 million in 2017, resulting in a compound annual growth rate (CAGR) of 43.4%.

Year

Revenue (Millions) Growth
2014

$125.4

2015

$187.3 49.4%
2016 $267.2

42.6%

2017

$370.0

38.5%

(Source: “Annual Financials for Redfin Corp.,” MarketWatch, last accessed July 20, 2018.)

Now there may be some concerns about the decline in the revenue growth rate, but I’m not that concerned, since the growth is still impressive.

Revenue growth is expected to be 29.5%—to $479.2 million—this year and 26.8%—to $607.8 million—in 2019. (Source: “Redfin Corporation (RDFN) rel=”nofollow noopener”,” Yahoo! Finance, last accessed July 20, 2018.)

Redfin is still a few years away from being profitable, but the company has been narrowing its earnings before interest, taxes, depreciation, and amortization (EBITDA) and earnings losses.

Year

EBITDA (Millions)
2014

-$22.4

2015

-$25.9
2016

-$16.5

2017

-$8.8

(Source: MarketWatch, op cit.)

If everything pans out, Redfin could see profits by 2019, following an adjusted loss of $0.28 per diluted share in 2018. At the high estimate, RDFN could earn $0.23 per diluted share in 2019.

Year

GAAP Earnings (Millions)
2014

-$24.7

2015

-$30.2
2016

$22.5

2017

$15.0

(Source: MarketWatch, op cit.)

Free cash flow (FCF) is also negative, but Redfin cut its FCF loss to a mere $6.8 million in 2017, and the company could turn its FCF positive this year.

Year

Free Cash Flow (Millions) Growth
2014

-$18.8

2015

-$25.0 -32.8%
2016 -$22.9

8.4%

2017

-$6.8

70.5%

(Source: MarketWatch, op cit.)

Analyst Take

Redfin is attracting an influx of institutional money, which is bullish. There are about 173 institutions holding RDFN stock, compared to 136 institutions just a few months back.

The potential market for Redfin is massive, with plenty of opportunities to win market share.

As a starter, Redfin stock could rally back toward the $28.00 resistance level and break to the $33.00 level prior to moving higher.