Over the last six months, eXp World’s shares have sunk to $11.32, producing a disappointing 10.7% loss - a stark contrast to the S&P 500’s 15.7% gain. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in eXp World, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why EXPI doesn't excite us and a stock we'd rather own.
Why Is eXp World Not Exciting?
Founded in 2009, eXp World (NASDAQ:EXPI) is a real estate company known for its virtual, cloud-based approach to real estate brokerage.
1. Weak Growth in Agents and Brokers Points to Soft Demand
Revenue growth can be broken down into changes in price and volume (for companies like eXp World, our preferred volume metric is agents and brokers). While both are important, the latter is the most critical to analyze because prices have a ceiling.
eXp World’s agents and brokers came in at 85,249 in the latest quarter, and over the last two years, averaged 4.8% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Breakeven Operating Raises Questions
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
eXp World’s operating margin might have seen some fluctuations over the last 12 months but has generally stayed the same. The company broke even over the last two years, inadequate for a consumer discretionary business. Its large expense base and inefficient cost structure were the main culprits behind this performance.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
eXp World has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.5%, lousy for a consumer discretionary business.
Final Judgment
eXp World isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 17× forward price-to-earnings (or $11.32 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. We’d recommend looking at our favorite semiconductor picks and shovels play.
Stocks We Would Buy Instead of eXp World
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.