Over the past six months, The Real Brokerage’s shares (currently trading at $4.11) have posted a disappointing 9.5% loss, well below the S&P 500’s 4.5% gain. This might have investors contemplating their next move.

Is there a buying opportunity in The Real Brokerage, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Do We Think The Real Brokerage Will Underperform?

Even though the stock has become cheaper, we're cautious about The Real Brokerage. Here are three reasons why there are better opportunities than REAX and a stock we'd rather own.

1. Operating Losses Sound the Alarms

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.

The Real Brokerage’s operating margin has been trending up over the last 12 months, but it still averaged negative 1.8% over the last two years. This is due to its large expense base and inefficient cost structure.

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

The Real Brokerage’s earnings losses deepened over the last five years as its EPS dropped 9% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. Consumer Discretionary companies are particularly exposed to this, and if the tide turns unexpectedly, The Real Brokerage’s low margin of safety could leave its stock price susceptible to large downswings.

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.

The Real Brokerage 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 3.3%, lousy for a consumer discretionary business.

Final Judgment

We see the value of companies helping consumers, but in the case of The Real Brokerage, we’re out. After the recent drawdown, the stock trades at 15.3× forward EV-to-EBITDA (or $4.11 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. Let us point you toward the Amazon and PayPal of Latin America.

Stocks We Like More Than The Real Brokerage

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

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