RE/MAX vs. Realogy: Which Real Estate Services Stock is a Better Investment?

RE/MAX Holdings, Inc. (RMAX) operates internationally as a franchisor of real estate and mortgage brokerage services. The Denver, Colo.-based concern operates through three segments: Real Estate; Mortgage; and Marketing Funds. In comparison, Realogy Holdings Corp. (RLGY) provides residential real estate services through its subsidiaries. It operates through three segments: Realogy Franchise Group; Realogy Brokerage Group; and Realogy Title Group. RLGY is based in Madison, N.J.

The continuing low-interest-rate environment and peoples' desire to move to improved living spaces have driven increased demand for real estate services over the past year. Furthermore, as travel restrictions are lifted on approximately 33 countries for vaccinated visitors, wealthy buyers from overseas are expected to descend on United States luxury housing markets, which could generate tens of billions of dollars in added sales. According to a SpendEdge report, the real estate agents and brokerage services market is expected to grow at a 4.8% CAGR by 2024. Therefore, both RMAX and RLGY should benefit.

RMAX shares have gained 0.9% in price over the past month, while RLGY's delivered negative returns. However, RLGY’s 41.7% gains over the past year are significantly higher than RMAX’s 0.5% returns. Moreover, RLGY is the clear winner with 37% gains versus RMAX’s negative returns in terms of year-to-date performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On October 22, 2021, RMAX announced the addition of four vendors to the RE/MAX Approved Supplier program. The additions include a moving and home management concierge platform, lead generation tools, and personal branding vendors. The program offers the most comprehensive offerings of business services in the industry.

On October 6, 2021, RLGY announced a strategic agreement to form a Title Insurance Underwriter joint venture with an investment from funds affiliated with Centerbridge Partners, L.P. RLGY’s CEO and President Ryan Schneider said, "This agreement enables us to be even more laser-focused on Realogy's core businesses, including critical consumer-facing transaction services in franchise, brokerage, title settlement and escrow, and mortgage."

Recent Financial Results

RMAX’s revenues increased 48% year-over-year to $77.25 million for its fiscal second quarter, ended June 30, 2021. The company’s adjusted EBITDA grew 61.3% year-over-year to $30.50 million, while its adjusted net income came in at $19.90 million, representing a 72.3% year-over-year increase. Also, its adjusted EPS was  $0.63, up 65.8% year-over-year.

XPO’s revenues increased 15% year-over-year to $2.19 billion for its  fiscal third quarter, ended September 30, 2021. However, the company’s operating EBITDA declined 13% year-over-year to $273 million, while its adjusted net income came in at $119 million, representing a 27% year-over-year decrease. Also, its adjusted EPS was  $1.02, down 27% year-over-year.

Past and Expected Financial Performance

RMAX’s revenue and levered FCF have grown at  CAGRs of 12.7% and 7.7%, respectively, over the past three years. And analysts expect RMAX’s revenue to increase 24.2% for the quarter ending December 31, 2021, and 12.7% in fiscal 2022. The company’s EPS is expected to grow 25.5% for the quarter ending December 31, 2021, and 10.9% in fiscal 2022. And its  EPS is expected to grow at a r122% per annum rate over the next five years.

In comparison, RLGY’s revenue and levered FCF grew at CAGRs of 8.6% and 44.5%, respectively, over the past three years. The company’s revenue is expected to decrease 1.6% for the quarter ending December 31, 2021, and 0.8% in fiscal 2022. Its EPS is expected to decline 32.4% for the quarter ending December 31, 2021, and 11.4% in fiscal 2022. However, RLGY’s EPS is expected to grow at a 27.7%  rate  per annum over the next five years.

Profitability

RLGY’s $7.90 billion trailing-12-month revenue is significantly higher than RMAX’s $293.06 million. However, RMAX is more profitable, with gross profit and EBITDA margins of 75.67% and 26.56%, respectively, compared to RMAX’s 40.82% and 10.95%, respectively.

Furthermore, RMAX’s 18.57% and 7.98% respective ROE and ROTC are higher than RLGY’s 16.63% and 7.10%.

Valuation

In terms of forward EV/S, RMAX is currently trading at 1.09x, which is 65.1% higher than RLGY’s 0.66x. However, RLGY’s 5.64x forward EV/EBITDA ratio is 81.9% higher than RMAX’s 3.10x.

POWR Ratings

RMAX has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In contrast, RLGY has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

RMAX has a B grade for Growth, which is consistent with analysts’ expectations that its EPS and revenue will increase in the coming months. In comparison, RLGY has a C grade for Growth, in sync with analysts’ expectations that its EPS and revenue will decline in the near term.

Of the 43 stocks in the Real Estate Services industry, RMAX is ranked #8. In contrast, RLGY is ranked #23.

Beyond what I have stated above, we have also rated the stocks for Momentum, Value, Stability, Quality, and Sentiment. Click here to view all the RMAX ratings. Also, get all the RLGY ratings here.

The Winner

The red-hot housing market could lead to solid price gains for the real estate services companies RMAX and RLGY. However, we think it is better to bet on RMAX because of its higher profit margin, better growth prospects, and robust financials.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Real Estate Services industry here.

RMAX shares were unchanged in after-hours trading Tuesday. Year-to-date, RMAX has declined -13.90%, versus a 26.23% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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