Stock of the Week: Unlocking Profits With This Global Real Estate Player

|January 27, 2023

There’s a lot of pessimism in the real estate sector. There are fears that the market will collapse as rising interest rates cool off prices and shut out would-be buyers.

But I think the pessimism is overdone. I don’t think the market will be as lackluster as feared… especially for diversified, global real estate companies…

Like this week’s Stock of the Week.

It provides cloud-based brokerage services and builds 3D virtual worlds… and it is seeing spectacular revenue growth.

And looking at my No. 1 indicator for a stock’s success, I see the company is an absolute master at turning capital into cash. It has a huge, 125% CROCI.

With the negativity in the sector already priced in, it won’t take much good news to send this one soaring.

Get all the details on the stock – including the ticker – in the latest video.

Click on the image below to watch it.


Well, hello, Manward family, and welcome to what’s been a relatively good start to the year for the market.

So let’s start off with our Stock of the Week, which should capture some of those gains and also should be resilient if the market, as some people say will happen, tails off during the course of the year.

So as ever, my hedge fund team has put together a series of stocks that they wanted me to look at. I’ve selected one and then done some due diligence using my experience and expertise on that one in particular.

This week’s Stock of the Week is eXp World Holdings (EXPI). Slightly unusual yet interesting, this one.

It provides cloud-based real estate brokerage services for residential homeowners and homebuyers. It is involved in building 3D virtual worlds for work, education and events. And it is focused on agent website and consumer real estate portal technology.

Now, virtual worlds sounds a bit “meta,” sounds like the future.

And indeed the company has been doing rather well. It was incorporated in 2008, but it changed its name in 2016 – I guess as a pivot toward the changing technologies and a way of catching up with what was going on.

Now, third quarter 2022 revenues were $1.24 billion. I bet you didn’t expect that when I gave you the explanation of what it does. That was up 11.5% year on year. That’s pretty spectacular, and it’s one of the things which attracted me to the company.

I also – if we dig deeper on the numbers – like the fact that, using my proprietary Growth-Value-Income, or GVI, indicator, this company scores a 7 out of 10. Now, GVI looks at the valuation of a company and weighs that – so things such as its share price to profitability, its rate of profit growth relative to share price – to make sure it’s undervalued, as well as revenue growth and also dividend yields and cash flow.

Now anything which is 7, 8 or 9… that meets my minimum threshold. This one does that.

Even better, its CROCI – cash return on capital invested – is 125%.

Now, why is that important? Well, CROCI was invented by Deutsche Bank Wealth Management for its wealthiest clients. And then Goldman Sachs Asset Management copied that to generate better stock picks for their wealthiest clients.

What they discovered is companies which are in the top quarter – the top 25% by CROCI, by cash return on capital invested – generate on average as a portfolio of stocks 30% per annum. Not every company in that portfolio and not every year, but as a basket.

This company meets that minimum requirement. Cash return on capital invested… It’s how efficient the company is at generating cash based on the capital it has.

Now, it’s not ideal as a company. It doesn’t tick every box. Its volatility is higher than I would like. Over the last six months, it’s not gone on the upward trend that I would’ve liked to have seen either. But it’s outperforming the markets. The Sortino ratio – which is a measure of reward, average return to average volatility, or risk, of missing that – is sufficient for me.

Let’s dive a bit deeper into some of these numbers.

Return on capital employed… 18%. Return on equity… 44%. Strong numbers in terms of the quality of the company.

Yes, depending on how you value it, you could argue it’s overvalued. If you look at its forecast P/E ratio, it’s trading at a multiple of 61 times its forecasted profits. Obviously, that’s expensive. That’s high. However, there are other things which are in its favor.

Its turnover is forecast to grow. You might say, “Well, wait a minute. Hang on, Alpesh. Its pretax profits are forecast to drop.”

I think that pessimism that’s been put into the company by forecasters means that it has a very low hurdle to jump over in order to see its share price rise. And, of course, that pessimism’s come in because the anticipation is the housing market will collapse, people won’t be buying and selling homes and so on.

Well, this is a diversified business, for a start. And secondly, I don’t think the housing market will be as lackluster as is anticipated.

The company’s turnover has been rising substantially over the last few years. Profits have as well and pretax profits. So it’s been able to keep those profits.

Let’s look at the stock price. It’s found a base after falling since January of 2021. Now, that base suggests it’s been given a good area from which to rise up. On a discounted cash flow basis, it’s actually substantially undervalued. Substantially undervalued.

Now, my usual rules apply – probably look to hold for 12 months, see where we’re at then.

Depending on how you measure the forecasts, the earnings are forecast to grow 47%. Now, remember, that’s different from earnings before interest and tax and so on.

There are different measurements of earnings given by different forecasters. So there are those who expect it to grow as well.

Yes, there are certain things which worry me. Profit margins are a bit lower than they were last year. But there are so many things going for it. I think it’s a fascinating one to be in.

So I think it’s an interesting Stock of the Week for me.

Thank you very much.