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Compass is main its market up

Compass (NASDAQ: COMP) is emerging as one of the most interesting stories in the real estate market today. There are many ways to get into the real world …

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August
11, 2021

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This story originally appeared on MarketBeat

Compass guidance underestimates its own potential

Compass (NASDAQ: COMP) is becoming one of the most interesting stories in the real estate market today. There are many ways to invest in the real estate market, but few with Compass's growth trajectory or involvement in digital and e-commerce. The company acts as an end-to-end cloud-based platform connecting agents with buyers and sellers, and it's a package that works. The company says it added 25% more agents over the past year, nearly doubled its market share in the U.S. residential real estate market, and had very solid growth in both revenue and bottom line.

Compass blows consensus behind it and leads higher

Compass should report a strong quarter backed by secular housing trends in the US market, but not quite the quarter it did. High demand and high prices fuel transactions despite the availability of homes and Compass serves as a high volume middleman. The company reports consolidated net sales of $ 1.95 billion, beating consensus by 2,400 basis points. Revenue is good for 186% growth last year, and that strength is being driven by both an increasing number of agents and an increase in the volume of transactions. On a per-transaction basis, the company reports that volume is up 140% compared to 32% reported by the broad retail market.

If you move the report down, the details are equally good. While the GAAP operating margin is still negative, it contracted sharply, resulting in a near-break even quarter for the company. On an adjusted basis, the operating margin improved by 12% to 3.7%. Regardless, the GAAP profit loss of $ 0.02 beat consensus by $ 0.12 and the company is well on its way to generating profits within the next quarter or two.

Looking ahead, given Q2 performance, the forecast is both robust and cautious. The company expects revenue to decline in the third and fourth quarters of the year, but is still strong enough to beat the consensus estimate for the full year. The new forecast expects full-year revenue of $ 6.15 to $ 6.35 billion versus the previous $ 5.35 to $ 5.55 range and consensus of $ 5.55. The forecast is for third-quarter revenue of $ 1.65 billion and fourth-quarter revenue of $ 1.45 billion at the lower end of the range that we consider very cautious indeed.

Analysts like the directional compass on course

Analysts at Compass were optimistic before the Q2 earnings report and have become even more since then. At least three major sell-side analysts have released comments, including an upgrade from neutral to buy and two price target increases. The consensus of these three analysts is close to $ 23, which is in line with the broader consensus, even though the high price target is at $ 26. The consensus of $ 23 implies a nearly 45% increase over recent price moves. No analyst rates the stock as a cell.

The technical outlook: Compass breaks and goes higher

Compass shares have gotten off to a shaky start since going public, but appear to have bottomed near $ 13. Price action has been rising for the past two weeks and is now breaking a potentially strong resistance point to confirm a reversal. If support can be held at the $ 16 level, we will see this stock moving to at least the $ 20 level. Looking ahead, the company expects strong third and fourth quarter results that should help push price action above the $ 20 level and to new highs by the end of the year.

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