Opendoor vs. FirstService: Which Real Estate Services Stock is a Better Investment?

FirstService Corporation (FSV) in Toronto, Canada, provides residential property management and other essential property services to residential and commercial customers in the United States and Canada. The company operates in two segments: FirstService Residential and FirstService Brands. In comparison, Opendoor Technologies Inc. (OPEN) in San Francisco operates a digital platform for residential real estate in the United States, enabling consumers to buy and sell homes online.

The continuing low-interest-rate environment, and the desire to move to bigger and better living and remote-working spaces have increased the demand for real estate services over the past year. Furthermore,  after the passage of a  $1 trillion infrastructure package on August 10, the Senate has turned its attention now to a $3.5 trillion measure that could include more extensive investments in housing and changes to zoning policies. According to a SpendEdge report, the real estate agents and brokerage services market is expected to grow at a CAGR of 4.8% from 2020 - 2024. Therefore, both FSV and OPEN should benefit.

OPEN has gained 5.5% in price over the past month, while FSV has returned 3.4%. However, FSV’s 51.9% gains over the past year are higher than OPEN’s 42.9% returns. Moreover, in terms of their past three months’ performance, FSV is the clear winner with 17.7% gains versus OPEN’s 1.9%.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

FSV announced on August 19that its subsidiary, First Onsite Property Restoration, had acquired Complete DKI and Moore Restoration, Inc. Stacy Mazur, First Onsite’s CEO, said, “These acquisitions will further drive operational excellence across our organization by enhancing our geographic coverage and ability to respond to the needs of our clients on a timely basis.”

Also this month,  OPEN announced the pricing of its offering of $850 million of 0.25% senior convertible notes. The company is expected to use the net proceeds to fund the cost of entering  capped call transactions and general corporate purposes.

Recent Financial Results

FSV’s revenue increased 34% year-over-year to $831.60 billion for its  fiscal second quarter, ended June 30, 2021. The company’s adjusted EBITDA grew 26% year-over-year to $89.90 million, while its adjusted net earnings increased 46.3% year-over-year to $53.47 million. Also, its adjusted EPS came in at $1.21, up 41% year-over-year.

OPEN’s revenue increased 59% year-over-year to $1.20 billion for its fiscal second quarter, ended June 30, 2021. The company’s gross profit grew 64% year-over-year to $159 million, while its contribution profit increased 68% from the same period last year to $128 million. Its total assets came in at $4.87 billion, up 123.8% sequentially.

Expected Financial Performance

Analysts expect FSV’s revenue to increase 16% in its fiscal year 2021 and 8.4% in fiscal 2022. The company’s EPS is expected to grow 18.6% in the current year and 9.2% next year.

In comparison,  OPEN’s revenue is expected to increase 157.5% in its fiscal year 2021 and 80.8% in fiscal 2022. Its EPS is expected to grow 94.1% in fiscal 2021 but decline 284.7% in fiscal 2022.

Profitability

FSV’s trailing-12-month revenue is 1.21 times OPEN’s. FSV is also more profitable, with a 32.34% gross profit margin, compared to OPEN’s 13.10%.

Furthermore, FSV’s ROE, ROA, and ROTC are 16.78%, 5.96%, and 8.03%, respectively,  compared with OPEN’s negative returns.

Valuation

In terms of forward EV/S, FSV is currently trading at 2.79x, which is 87.2% higher than OPEN’s 1.49x. However, OPEN’s 164.11x forward EV/EBITDA ratio is 503.1% higher than FSV’s 27.21x.

POWR Ratings

FSV has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In contrast , OPEN has an overall F rating, which translates to a Strong Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

FSV has a B grade for Growth, consistent with analysts’ expectations that its EPS will increase in the coming quarters. However, OPEN has a D grade for Growth, which is consistent with analysts’ expectations that its EPS will remain negative in its fiscal years 2021 and 2022.

FSV has a B grade for Stability, which is in sync with its 0.76 beta, while OPEN has an F Stability grade, which is  in sync with its 2.20 beta.

Of the 46 stocks in the Real Estate Services industry, FSV is ranked #7. However, OPEN is ranked #41 of 42 stocks in the Internet – Services industry.

Beyond what we’ve stated above, we have also rated the stocks for Momentum, Sentiment, Value, and Quality. Click here to view all the FSV ratings. Also, get all the OPEN ratings here.

The Winner

The red-hot housing market could lead to solid price gains for the real estate services-related companies FSV and OPEN. However, we think it is better to avoid OPEN and instead bet on FSV now because of its significantly higher profitability and better growth prospects.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Real Estate Services industry here. Also, click here to access all the top-rated stocks in the Internet – Services industry.

FSV shares were trading at $188.33 per share on Tuesday morning, up $0.01 (+0.01%). Year-to-date, FSV has gained 37.85%, versus a 20.59% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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