Sat. Oct 1st, 2022

1 Real Estate Stock That Can Beat a Recession

All of a sudden, it seems like fears of a recession are everywhere. U.S. GDP fell in the first quarter, meaning we’re halfway to a recession, according to the standard definition of two straight quarters of negative GDP growth. In addition, the S&P 500 is on the cusp of a bear market, having fallen 17% from its peak in early January.

With the Federal Reserve expected to continue ratcheting up interest rates and inflation currently above 8%, many expect economic conditions to deteriorate.

Recessions generally hit the real estate industry hard, as real estate is cyclical, and rents across a wide range of classes are tied to the broader economy, especially industrial and commercial real estate properties like offices and warehouses.

Person controls home features through smart phone and tablet.

Image Source: Getty Images.

However, one real estate stock that seems well positioned to buck the potential recession is SmartRent (NYSE: SMRT), a property tech company that helps multifamily housing landlords manage their facilities to help monitor for emergencies like a leak in the basement, as well as control the thermostat remotely and handle things like keyless entry.

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SmartRent accomplishes this through its Smart Hub, a hardware-agnostic device that pairs with smart home tools like Ring, Nest, Honeywell devices, and others to give landlords one streamlined tool to monitor their properties.

The path ahead

Founded in 2017, SmartRent went public through a SPAC last year and is growing quickly. In its first quarter, revenue jumped 95% to $37.4 million, topping estimates at $36.5 million, and the company is calling for full-year revenue of $220 million to $250 million, representing 112% growth at the midpoint. That guidance includes the company’s recent acquisition of SightPlan, a software-as-a-service company that helps companies with customer relationship management, managing work orders and transactions, and related tasks, and seems like a natural complement to SmartRent’s core business.

While most of SmartRent’s revenue comes from sales of its smart hub devices, the company also has a software component, where it charges landlords $7 to $10 a month to run the monitoring system. In addition, its software business should see additional growth over time from the acquisition of SightPlan and as the number of housing units using SmartRent increases.

In the first quarter, SmartRent’s units deployed and committed increased to 380,000, and most of the top 20 multifamily housing companies are already its customers. Its current customer base has 5.1 million homes, so the company could grow its installed base by more than 10 times without even signing a new customer.

When including all the leased rental units in the U.S., its addressable market increases to 43 million, and the company has also begun expanding internationally, currently operating in Canada and the U.K.

SmartRent is not currently profitable, having lost $23.1 million in adjusted EBITDA in the first quarter, compared to an $8.4 million loss in Q1 2021. However, management envisions crossing into EBITDA profitability sometime next year, and the business should naturally scale as the software segment gets bigger.

Why it can beat a recession

The rental market has been on fire across much of the country, and price appreciation is likely to slow down as the Federal Reserve tightens its monetary policy. However, even if there’s a sustained slump in the housing market, it’s unlikely to derail SmartRent’s growth plans. That’s because the company offers landlords a way to save both money and time by being aware of incidents when they happen and by monitoring their properties remotely.

After going public last August, SmartRent has faced stiff headwinds in the growth stock sell-off, as shares are down two-thirds from where they were when the SPAC merger was completed. However, with revenue set to double this year, the stock is trading at just four times forward sales. That looks like an attractive price for a stock whose revenue is doubling annually with a huge addressable market, and one that’s set to become EBITDA profitable next year.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

SOURCE https://www.nasdaq.com/articles/1-real-estate-stock-that-can-beat-a-recession

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