Share Dilution

Why you should buy this undervalued stock before everyone else


Iif you’ve never heard of it eXp World Holdings (NASDAQ: EXPI), you’re probably not alone, but this little real estate broker might become a household name (literally).

eXp is growing like gangbusters, and the reasons for this growth could allow eXp to continue to grow for many years to come. It is about to erupt not only nationally, but around the world. At these valuations, shareholders could see extreme benefits if they invest before this company receives wider attention.

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Best Agent Incentives On The Market

eXp has an unwavering commitment to its agents – wanting to become “the most agent-centric company on the planet” – by delivering agent value through compensation and its cloud-based workspace. The main value for agents is its unmatched compensation offerings. The company has no franchise fees – the cost of opening as eXp – and it gives agents 80% of gross commission income, or GCI, on the first $ 80,000. They then receive 100% of any remaining GCI. This is rare in the real estate industry. For example, Keller williams (NYSE: KW), gives agents only 70% GCI for GCI’s first $ 140,000.

Agents receive large amounts of inventory incentives: Agents could receive up to $ 1,000 in inventory after just their first year, and they could voluntarily receive 5% of their commission in inventory with a 10% discount. Agents could even receive up to $ 16,000 in scholarships if they become premium agents, known as ICON agents. Starting in the second quarter of 2021, the company is also offering a dividend – albeit a modest one – of $ 0.04 per share. This little incentive sweetens the pot a bit more and encourages agents to invest more in eXp.

eXp also offers the ability to work from a cloud-based platform so agents never have to work in an office again. Virbela – a virtual world platform purchased by eXp in 2018 – allows agents to work entirely from home. This form of work has been largely successful for eXp: the company won the Glassdoor ‘Best Workplaces’ 2020 and 2021 awards, which makes sense given that 76% of office workers worldwide want to continue. to work from home after COVID-19. Virbela offers more than work from home services. This virtual office allows agents to connect with other agents around the world and helps agents easily settle in new states and countries without having to build offices in new areas.

Rapid growth

These incentives enabled strong agent growth: the number of agents on the platform in the second quarter of 2021 increased by 87% compared to the previous year quarter, surpassing 58,000 agents, resulting in more 115,000 transactions in the second quarter. Revenue in the quarter grew more than 180% to $ 1 billion, double the size of Red tuna‘s (NASDAQ: RDFN) $ 470 million in the second quarter of 2021, and is catching up Zillow (NASDAQ: Z) (NASDAQ: ZG) – which reached $ 1.3 billion in revenue in the second quarter of 2021.

eXp is also drastically increasing its international presence. The company entered three new countries in the second quarter and announced its expansion to Germany in August. This brought eXp operations to 18 different countries and territories. In addition, the company plans to operate in Japan by the end of the year.

While its gross margins aren’t pretty – just 8% in the second quarter, compared to 50% for Zillow and 28% for Redfin – eXp is the only company out of the three to have positive cash flow every quarter over the five. last years. . Free cash flow amounted to $ 234 million in the second quarter of 2021, while close competitors Redfin, Zillow and Compass (NYSE: COMP) all reported negative cash flows for their comparable reporting periods. The highest free cash flow figure among them was Compass, at $ 155 million.

Attractive valuation

eXp is very undervalued, trading at just 2.4 times sales. This beats Zillow, which is trading at 5.7 times sales, and Redfin, which is trading at 4.1 times sales. The valuation of eXp is only higher than that of Compass, which trades at 1 times sales.

There are many risks associated with eXp. Dealing with some of the biggest real estate companies in the world will always be a major threat to the business. EXp investors also face the risk of dilution. With so many stock awards for agents, shareholders have been diluted by 48% over the past five years. eXp is taking steps to mitigate this: repurchases nearly $ 89 million of common stock so far in 2021.

Although eXp does not have an easy road, its growth and strong cash generation could allow it to continue its strong growth for the foreseeable future. I think it’s only a matter of time before eXp gains prominence, and due to its low valuation despite performing against its competition, you should consider adding eXp to your portfolio. so you don’t miss out.

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Jamie Louko owns shares of Redfin, Zillow Group (C shares) and eXp World Holdings. The Motley Fool owns and recommends Redfin, Zillow Group (A-shares), Zillow Group (C-shares) and eXp World Holdings. The Motley Fool recommends the following options: $ 65 short calls from November 2021 on Redfin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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