Compass (COMP) just saw its stock slip after reports that Google is testing home listings directly in search results, a move that immediately raised questions about how durable Compass online real estate edge really is.
See our latest analysis for Compass.
That reaction comes after a powerful run, with Compass posting a roughly 78 percent year to date share price return and a more than threefold three year total shareholder return. As a result, today’s pullback looks more like a sentiment check than a trend change.
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With shares now sitting just below analyst targets but still trading at a near 30 percent discount to intrinsic value estimates, is Compass a rare mispriced growth story, or is the market already baking in its next leg higher?
Compared with the narrative fair value of about $10.22, Compass last closed slightly higher at $10.34, framing a near knife edge valuation debate.
Strong operational leverage from ongoing cost controls and integration of recent M&A (such as Christie’s International Real Estate) not only drives substantial and sustained EBITDA improvement but also positions Compass for further margin expansion, as future OpEx growth remains capped below revenue growth rates.
Read the complete narrative.
Want to see the math behind this ambitious margin story? The narrative focuses on accelerating earnings power and a future profit multiple that could surprise skeptics. Curious which growth and profitability assumptions have to align for this price to hold up? Take a closer look at how those forecasts translate into today’s fair value.
Result: Fair Value of $10.22 (OVERVALUED)
Have a read of the narrative in full and understand what’s behind the forecasts.
However, this bullish setup depends on Compass avoiding regulatory clampdowns on commissions and demonstrating that its tech investments can offset industry wide pressure on traditional brokerage margins.
Find out about the key risks to this Compass narrative.
While the narrative model sees Compass as 1.2 percent overvalued, our DCF model points the other way and suggests the stock is undervalued, with fair value closer to $14.73 than today’s $10.34. Which set of assumptions do you trust more, the story or the cash flows?
Look into how the SWS DCF model arrives at its fair value.
