What’s going on with Real Matters stock?

What’s up with Real Matters (Real Matters Stock Quote, Chart, News TSX:REAL)?

The tech company to the mortgage lending and insurance industries was definitely one to own over the past couple of years but the stock has fallen off quite a bit in recent months and is now down 43 per cent since early August. That’s a bit odd, says portfolio manager Bruce Campbell, who thinks the company has sectoral tailwinds in its favour.

“Real Matters isn’t one we own right now but we did quite recently own it. We actually got stopped out on our position as it started to fall and so we’re, we’re just watching it from the sidelines right now. It has had a fairly dramatic fall,” said Campbell, president of StoneCastle Investment Management, who spoke on BNN Bloomberg on Tuesday.

“It’s one that we think going forward should have quite a bit of tailwind behind it, so we were a little bit surprised with the pullback that it has had,” Campbell said.

Headquartered in Markham, Ontario, Real Matters is a network management services provider with a cloud-based platform allowing clients to manage real-estate processes including appraisals, insurance inspections, title search and mortgage closings. The company saw its share price rise from C$4 to over C$12 per share in 2019, with a just-as-dramatic climb in 2020, hitting C$32.81 by August 6.

The decline since —the stock is currently trading around the $19 mark— was seemingly aided by reaction to the company’s latest earnings report in November, which saw REAL grow its revenue by 16 per cent year-over-year in its fiscal fourth quarter 2020 to $47.0 million while adjusted EBITDA climbed a full 57.5 per cent to $22.2 million. (All figures in US dollars).

For the fiscal year, Real Matters generated $70.8 million in consolidated revenues from its US Appraisal segment, $43.9 million from US Title and $9.7 million from its Canadian business, for respective yearly gains of 2.7 per cent, 45.9 per cent and 16.8 per cent.

Real Matters management said it was ahead of schedule in its growth plan, having hit many of its 2021 by the end of the fiscal 2020.

“We ended the year with U.S. Appraisal market share of 11.7 per cent and U.S. Title market share of 2.4 per cent. Our fiscal 2020 consolidated revenues increased over 41 per cent year-over-year to $455.9 million, consolidated Net Revenue was up nearly 59 per cent, and consolidated Adjusted EBITDA more than doubled to $72.2 million while consolidated Adjusted EBITDA margins increased to 44.6 per cent from 28.4 per cent in Fiscal 2019,” said then newly-anointed CEO Brian Lang in the fourth quarter press release on November 20.

Even with the apparently strong numbers, the market peeled back the stock with the Q4 report, dropping the stock over 20 per cent in ensuing trading.

National Bank Financial analyst Richard Tse said investors should take the dip as a buying opportunity, however, saying that Real Matters has plenty of room to grow its market share in the United States, especially in its Title and Close segment.

In an update to clients on November 20, Tse estimated REAL’s Title and Close business to grow by 45 per cent in its fiscal 2021. Importantly, those gains have yet to be priced into the stock, Tse said, leaving open a window of opportunity for investors. Tse reasserted his “Outperform” rating and C$40.00 price target with his update, which at press time represented a projected one-year return of 78.9 per cent.

“With continued macro strength (low rates ~ higher volumes) and market share gains, we like the risk-to- reward profile on REAL,” Tse said.

Campbell also likes the look of Real Matters in the current housing climate.

“Where they’ll get the tailwind is in the mortgage market and the refinancing of mortgages going forward. With interest rates so low and [the US Federal Reserve] really earmarking that they’re going to stay low for a while, we would expect that there’s going to be a continual refinancing of existing mortgages but also as mortgages come due,” Campbell said.

“Real Matters’ technology obviously helps and allows that to be done more efficiently and easier, and so we would expect to see that as long as that interest rates stay low and the housing market stays strong, especially in the US, that the stock will produce fairly good numbers,” he said.

“The pullback of late certainly has been fairly severe. That happens quite a bit when you look at Canadian technology companies. If they happen to miss a number then the stock can pull back,” Campbell said. “So, it’s one that we have on our radar to watch and when we really feel that it’s bottomed and is starting the next uptrend, it certainly will be one that we will look at for our portfolios to add back to.”