The pandemic led to a rise in demand for real estate investing and house flipping due to record-low interest rates. The demand for housing meant real estate services were also in high demand. However, the demand for real estate services slowed due to high inflation and the Fed’s aggressive interest rate hikes, which led to higher mortgage rates.
The real estate services industry is expected to do well as mortgage rates fall, moderation in residential and industrial property prices and a strong labor market. To that end, it could be wise to buy real estate services stocks Hang Lung Properties Limited (HLPPY), Guild Holdings Company (GHLD), and AMREP Corporation (AXR).
The prospects of the real estate services industry are closely linked to the prospects of the real estate industry. Real estate services companies provide various services, such as property management, leasing, sales, and appraisal.
Although the economic outlook remains uncertain, the volatility of debt costs will likely ease. Also, the demand for office space will likely rise as more employees return to offices. Moreover, with mortgage rates falling consistently, the demand for housing is expected to increase. Sales of new homes rose 1.1% sequentially in February, indicating that the housing market might be stabilizing.
The long-term prospects of the real estate services industry look bright due to the growing population, availability of easy credit, changes to tax laws, increased desire for personal household space, and favorable government policies and regulations.
The global real estate market is expected to grow at a CAGR of 5.3% to reach $48.92 trillion by 2031. Additionally, investors’ interest in real estate stocks is evident from the iShares Residential and Multisector Real Estate ETF (REZ) 2.9% returns year-to-date.
Given these factors, investors could look to buy fundamentally strong real estate services stocks HLPPY, GHLD, and AXR.
Let’s discuss these stocks in detail.
Hang Lung Properties Limited (HLPPY)
Headquartered in Central, Hong Kong, HLPPY, an investment holding company, engages in the property investment, development, and management activities in Hong Kong and Mainland China. The company operates through Property Leasing and Property Sales segments.
In terms of the trailing-12-month EBIT margin, HLPPY’s 64.06% is 182% higher than the 22.71% industry average. Its 36.99% trailing-12-month net income margin is 186.9% higher than the industry average of 12.89%. Likewise, its 43.53% trailing-12-month levered FCF margin is 13.4% higher than the 38.38% industry average.
HLPPY’s revenue for the fiscal year that ended December 31, 2022, increased marginally year-over-year to HK$10.35 billion ($1.32 billion). The company’s operating profit for Hong Kong rose 1.3% year-over-year to HK$2.75 billion ($350.34 million). Its net profit attributable to shareholders came in at HK$3.84 billion ($489.20 million). Moreover, its EPS came in at HK$0.85.
HLPPY’s revenue for fiscal 2023 is expected to increase 34.2% year-over-year to $1.77 billion. Over the past six months, the stock has gained 9.3% to close the last trading session at $9.33.
HLPPY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #2 out of 40 stocks in the Real Estate Services industry. In addition, it has a B grade for Stability and Quality.
We have also given HLPPY grades for Growth, Value, Momentum, and Sentiment. Get all the HLPPY ratings here.
Guild Holdings Company (GHLD)
GHLD originates, sells, and services residential mortgage loans in the United States. It operates in two segments, Origination, and Servicing.
On March 13, 2023, GHLD acquired Cherry Creek Mortgage, LLC, a privately held Colorado-based lender with physical branches across the country. GHLD’s CEO, Mary Ann McGarry, said, “Cherry Creek has grown steadily over the years and shown a dedication to giving back that parallels ours, with an executive team and loan officers who are active in every market.”
“Guild has a longstanding admiration for Cherry Creek’s approach to business and its accomplishments, and we feel confident our two companies will be able to take advantage of our synergies in each market and do even more for our customers together,” she added.
In terms of the trailing-12-month gross profit margin, GHLD’s 100% is 67.4% higher than the 59.75% industry average. Its 137.23% trailing-12-month levered FCF margin is 648.4% higher than the industry average of 18.34%. Likewise, its 36.22% trailing-12-month EBITDA margin is 69.4% higher than the 21.38% industry average.
For the fiscal year that ended December 31, 2022, GHLD’s net income attributable to GHLD increased 15.8% year-over-year to $328.60 million. The company’s adjusted EBITDA came in at $103.50 million. Its adjusted net income and adjusted EPS came in at $70 million and $1.15, respectively.
GHLD’s EPS and revenue for fiscal 2024 are expected to increase 98.4% and 23.7% year-over-year to $1.82 and $875.67 million, respectively. It has an impressive earnings surprise history, surpassing its consensus EPS estimates in three of the trailing four quarters. The stock has gained 3% year-to-date to close the last trading session at $10.39.
GHLD’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It is ranked first in the same industry. The stock has an A grade for Sentiment and Quality and a B for Value.
Click here to see the additional ratings of GHLD for Growth, Momentum, and Stability.
AMREP Corporation (AXR)
AXR primarily engages in the real estate business, selling developed and undeveloped lots to homebuilders, commercial and industrial property developers, and others. The company operates through two segments, Land Development, and Homebuilding.
In terms of the trailing-12-month net income margin, AXR’s 50.91% is 294.9% higher than the 12.89% industry average. Its 31.68% trailing-12-month Return on Common Equity is 692.4% higher than the industry average of 4%. Likewise, its 0.58x trailing-12-month asset turnover ratio is 354.5% higher than the 0.13x industry average.
For the fiscal third quarter that ended January 31, 2023, AXR’s net income increased significantly year-over-year to $16.57 million. In addition, the company’s EPS increased considerably year-over-year to $3.12. Also, its revenues came in at $9.12 million.
Over the past nine months, the stock has gained 34.2% to close the last trading session at $15.11.
AXR’s POWR Ratings reflect its positive outlook. It has an overall rating of B, which equates to a Buy.
It is ranked #4 in the Real Estate Services industry. In addition, it has a B grade for Value and Sentiment. To see the other ratings of AXR for Growth, Momentum, Stability, and Quality, click here.
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HLPPY shares were trading at $9.27 per share on Wednesday morning, down $0.06 (-0.64%). Year-to-date, HLPPY has declined -3.84%, versus a 7.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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