With a year-to-date decline of over 90% in its stock price, Redfin (NASDAQ:RDFN) has become a penny stock. While this enormous correction in its stock price makes it attractive at current levels, Oppenheimer analyst Jason Helfstein sees a further correction in RDFN stock.
What’s more? Redfin stock has an Underperform Smart Score on TipRanks.
Here’s Why Redfin Stock Could Stay Under Pressure
Redfin is a tech-based real estate company, and higher mortgage rates are taking a toll on the company. The higher interest rate environment is hurting home-buying demand and weighing on the company’s financials.
On higher mortgage rates, Redfin’s Deputy Chief Economist Taylor Marr said, “Mortgage rates may take longer to come down than many have expected, which means housing trends could continue to worsen as the economy adjusts to higher rates.”
While dwindling demand and uncertainty are a concern, analyst Jason Helfstein downgraded RDFN stock to Sell and termed its business model “flawed.” Further, his price target of $1.30 implies a 63% downside potential.
Helfstein is concerned about Redfin’s fixed-cost model for its agents, which impacts the company’s margins. For example, Redfin employs its lead agents and incurs costs like base pay, employee benefits, and expense reimbursements, which its competitors do not have. With this fixed-cost model, Redfin’s margins come under pressure in the event of a downturn in demand.
Also, the analyst expects housing market demand to remain subdued over the next couple of years.
Is Redfin a Buy, Sell, or Hold?
On TipRanks, Redfin stock has a Hold consensus rating based on eight Holds and one Sell recommendation. Meanwhile, analysts’ average price target of $8.36 implies 130.3% upside potential.
Redfin stock has negative signals from hedge funds and retail investors. Hedge funds sold 360.5K RDFN stock last quarter. Moreover, 2.1% of investors holding portfolios on TipRanks lowered their exposure to the stock.
Redfin stock scores one out 10 on TipRanks’ Smart Score system, implying Underperform outlook.
Bottom Line
The high mortgage rates and uncertainty could continue to pressure the housing market and Redfin stock. Also, its low Smart Score indicates underperformance. While Redfin could continue to disappoint, investors can find high-quality penny stocks by leveraging TipRanks’ Penny Stocks Screener.
However, investors should take caution and learn more about Penny stocks before investing.
