Top 2 Real Estate Stocks You May Want To Dump In February

As we step into February, investors are keeping a close eye on the real estate sector, which has been grappling with headwinds from rising interest rates and affordability concerns. While some stocks may present attractive opportunities, others might be better off avoided. In this article, we'll highlight two real estate stocks that investors may want to consider dumping in February.



1. Zillow (Z, ZG)

At first glance, Zillow (NASDAQ:Z, NASDAQ:ZG) appears to be on an impressive recovery effort, with its Class C stock gaining 26% since January. However, it remains down over 14% in the trailing year, raising a cautionary tone. Fundamentally, with the consumer base, particularly younger folks, suffering significantly from the current economic environment, Zillow doesn't seem appetizing.

Financially, the core numbers suggest investors should consider Z as one of the real estate stocks to avoid. First, on a per-share basis, its three-year revenue growth rate slipped to 15.3% below breakeven. In terms of profit margins, Zillow's operating margin is a mere 1.6%, indicating weak profitability. Additionally, its return on assets (ROA) and return on equity (ROE) are both negative, further highlighting the company's financial struggles.



2. Redfin (RDFN)

Redfin (NASDAQ:RDFN) is another real estate stock that investors may want to avoid in February. Despite its recent rally, the stock remains down over 50% in the trailing year. Fundamentally, Redfin's business model relies heavily on the housing market's strength, which has been waning due to rising interest rates and affordability concerns.

Financially, Redfin's core numbers are also concerning. Its three-year revenue growth rate is a mere 1.5% below breakeven, and its operating margin is a meager 0.7%. Moreover, its return on assets (ROA) and return on equity (ROE) are both negative, indicating weak profitability. Additionally, Redfin's high debt levels, with a debt-to-equity ratio of 1.2, further compound its financial challenges.



In conclusion, investors should be cautious when considering real estate stocks in February, particularly Zillow (Z, ZG) and Redfin (RDFN). Both companies face significant financial challenges and operate in a sector that is grappling with headwinds from rising interest rates and affordability concerns. While the recent rally in these stocks may be enticing, investors should carefully evaluate the risks and consider alternative investment opportunities. As always, it's essential to conduct thorough research and consult with a financial advisor before making any investment decisions.