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NFLX   224.07 (-1.03%)
S&P 500   3,655.04 (-1.03%)
DOW   29,260.81 (-1.11%)
QQQ   274.37 (-0.41%)
AAPL   150.77 (+0.23%)
MSFT   237.30 (-0.26%)
META   136.37 (-2.88%)
GOOGL   98.17 (-0.58%)
AMZN   115.15 (+1.20%)
TSLA   276.01 (+0.25%)
NVDA   122.28 (-2.30%)
NIO   17.62 (-0.11%)
BABA   78.91 (+0.14%)
AMD   66.30 (-2.44%)
T   15.67 (-2.12%)
MU   48.87 (-2.46%)
CGC   2.74 (-3.52%)
F   11.99 (-2.60%)
GE   64.35 (-0.31%)
DIS   98.12 (-1.39%)
AMC   6.83 (-14.52%)
PYPL   84.14 (-3.25%)
PFE   43.83 (-0.57%)
NFLX   224.07 (-1.03%)
S&P 500   3,655.04 (-1.03%)
DOW   29,260.81 (-1.11%)
QQQ   274.37 (-0.41%)
AAPL   150.77 (+0.23%)
MSFT   237.30 (-0.26%)
META   136.37 (-2.88%)
GOOGL   98.17 (-0.58%)
AMZN   115.15 (+1.20%)
TSLA   276.01 (+0.25%)
NVDA   122.28 (-2.30%)
NIO   17.62 (-0.11%)
BABA   78.91 (+0.14%)
AMD   66.30 (-2.44%)
T   15.67 (-2.12%)
MU   48.87 (-2.46%)
CGC   2.74 (-3.52%)
F   11.99 (-2.60%)
GE   64.35 (-0.31%)
DIS   98.12 (-1.39%)
AMC   6.83 (-14.52%)
PYPL   84.14 (-3.25%)
PFE   43.83 (-0.57%)
NFLX   224.07 (-1.03%)
S&P 500   3,655.04 (-1.03%)
DOW   29,260.81 (-1.11%)
QQQ   274.37 (-0.41%)
AAPL   150.77 (+0.23%)
MSFT   237.30 (-0.26%)
META   136.37 (-2.88%)
GOOGL   98.17 (-0.58%)
AMZN   115.15 (+1.20%)
TSLA   276.01 (+0.25%)
NVDA   122.28 (-2.30%)
NIO   17.62 (-0.11%)
BABA   78.91 (+0.14%)
AMD   66.30 (-2.44%)
T   15.67 (-2.12%)
MU   48.87 (-2.46%)
CGC   2.74 (-3.52%)
F   11.99 (-2.60%)
GE   64.35 (-0.31%)
DIS   98.12 (-1.39%)
AMC   6.83 (-14.52%)
PYPL   84.14 (-3.25%)
PFE   43.83 (-0.57%)
NFLX   224.07 (-1.03%)

Are Layoffs At A Small-Cap Tech A Bellwether For Housing Stocks?

  • American Homes for Rent has a "moderate-buy" rating for some interesting reasons.
  • Legacy Housing has an upside of 50.03% and is worth consideration.
  • Equity Residential is down but still profitable, and has a key trait that institutional investors look for.
Are Layoffs At A Small-Cap Tech A Bellwether For Housing Stocks?

Small-cap Compass (NYSE: COMP), which runs an end-to-end platform for buying, selling, and renting real estate, lost its way Thursday, drifting more than 6% lower in heavy volume after announcing layoffs.

Compass has been in a death spiral since its IPO in April, 2021. Soon after it went public at $18, the broader market wobbled, and Compass followed along. The stock attempted a rally in August. However, the odds were stacked against a rally, as the broader enterprise software industry, as well as real-estate stocks, such as homebuilders and real estate investment trusts, also hit the skids in August of 2021.

Compass closed Thursday at $2.29. Its market cap stands at $989 million, a big fall from grace after its $7.2 billion valuation at the time of its IPO.

The company has never been profitable, and Wall Street has no expectations for that to change anytime soon.

In and of itself, a failed IPO (at least for the moment) isn’t something to get worked up about.

What’s Ahead For Real Estate Stocks? 

But is Compass a bellwether for what’s ahead for various real-estate-related stocks? Given the Federal Reserve’s series of rate hikes, and with more expected, the cost of mortgages is on the rise. Already, mortgage applications are down 23% from a year ago, according to the Mortgage Brokers Association. 


Given that scenario, It’s not exactly a shock that homebuilders such as D.R. Horton (NYSE: DHI) are slumping. 

But what about the much-vaunted rental trade? You might think that if mortgages are getting tougher and tougher for Americans to afford, publicly traded operators of rental properties must be sitting pretty, right? 

In one sense, yes. For example, take American Homes For Rent (NYSE: AMH). The California company acquires, renovates, and leases single-family homes. It owns more than 57,000 rental homes in 22 states.  

American Homes has posted double-digit revenue growth in the past five quarters and double-digit earnings growth in the past six. Analysts expect earnings to grow 16% for the full year, to $1.41 per share. Next year, that’s seen rising to $1.57 per share, which would be an additional 11% growth. 

However, if you’re going by just the chart action, you’re seeing a familiar sight: A stock that’s down in recent months and can’t get much upside traction. American Homes is down 20.94% year to date. 

The picture may not be so bleak, though. According to MarketBeat analyst data, Wall Street has a “moderate-buy” rating on the stock with a price target of $42.07, a potential upside of 23.67%.

Potential In Housing REITs

Turning to another segment of the non-traditional single-family-home industry, Legacy Housing (NASDAQ: LEGH) has been growing earnings at a fast clip. Per-share income increased between 17% and 57% in each of the past eight quarters. Revenue hasn’t been quite as strong, but it has been growing and came in at $59.9 million in the most recent quarter, an increase of 50%. 

Legacy is structured as a REIT, meaning it invests in a portfolio of income-producing real estate. One of the attractive features of a REIT is tax-advantaged pass-through income, meaning investors are assured of a healthy return even in a down market. 

Legacy specializes in building, selling, and financing mobile homes and tiny homes in the southeastern U.S. It’s pretty clear from that business model that the company could benefit from a high-interest-rate environment when potential buyers can’t afford a traditional home. 

Analysts have a “moderate-buy” rating on the stock with a price target of $26, which would be an upside of 50.03%, according to MarketBeat’s analyst data on the stock

Apartments May Shine Amid High Rates

Fellow REIT Equity Residential (NYSE: EQR), which acquires, develops, owns, and manages multi-family apartment buildings, has slumped more than 5% this week. This is yet another example of a company that seems poised to benefit from a high-interest-rate environment. 

It’s possible the stock, like American Homes and Legacy, is in oversold territory. Equity Residential has been growing revenue and earnings in the past three quarters, after several quarters in a row with declines, as you can see using MarkeBeat’s data on revenue and net income

Despite declines, it’s important to note that the company has remained profitable, which is a sign that the company is well managed. That’s something institutional investors look for. 

With any stock, the broad-market trend plays a role in its performance. As interest rates remain high and home purchases remain out of reach for many, non-traditional housing companies may be a good way to access that market segment. 
Are Layoffs At A Small-Cap Tech A Bellwether For Housing Stocks?

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Compass (COMP)
1.75 of 5 stars
$2.29-2.6%N/A-1.67Moderate Buy$8.96
American Homes 4 Rent (AMH)
3.1677 of 5 stars
$33.04-3.1%2.18%57.97Moderate Buy$41.92
Equity Residential (EQR)
3.0261 of 5 stars
$66.28-3.1%3.77%19.90Hold$84.53
Legacy Housing (LEGH)
2.0018 of 5 stars
$17.22+0.3%N/AN/AModerate Buy$26.00
Compare These Stocks  Add These Stocks to My Watchlist 

Should you invest $1,000 in Compass right now?

Before you consider Compass, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Compass wasn't on the list.

While Compass currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

Kate Stalter

About Kate Stalter

Contributing Author: Retirement, Asset Allocation, and Tax Strategies

Kate Stalter is a Series 65-licensed asset manager, with more than two decades of experience in various areas of financial services. As an investment advisor and financial planner, Kate personally manages client portfolios, with a focus on successful retirement, including asset allocation, income generation and tax strategies. Kate also serves as a capital-markets contributor at Forbes.com, and is an expert columnist for the investment advisory channel at U.S. News & World Report.
Contact Kate Stalter via email at stalterkate@gmail.com.
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