Shares of Redfin Corp. sank into record-low territory Monday after Oppenheimer’ Jason Helfstein recommended investors sell, as he explained why he believed the real estate services company has a flawed business model.
was down 6.2% in premarket trading, putting it on track to open below the Oct. 20, 2022 record-low close of $3.93.
It has already plunged 61.3% over the past three months through Friday, and 91.9% over the past 12 months, and analyst Helfstein’s new price target suggests it could lose another two-thirds of its value.
“We believe Redfin’s core business is fundamentally flawed with fixed-cost model for agents versus 100% commission for industry,” Helfstein wrote in a note to clients.
Helfstein cut his rating to underperform, after being a perform from the past two years. He established a stock price target of $1.30, which is 67.7% below Friday’s closing price of $4.02.
He explained that Redfin’s business model prevents the company from optimizing margins when housing markets decline, and prevents it from gaining market share when markets rebound.
That means the company lags the market by six-to-12 months, at a time when surging mortgage rates have led to steep declines in home sales.
Fannie Mae, the government-sponsored enterprise (GSE) that guarantees mortgages, said Monday that its Home Purchase Sentiment Index fell for the eight-straight month in October to 56.7, the lowest reading since the inception of the index in 2011.
“[W]e estimate that it will take ~two years for housing demand to return to meaningful growth,” Helfstein wrote.
The stock has lost 89.5% this year, while the S&P 500 index
has shed 20.9%.