Is Zillow Setting Up for a Big Move? – September 23, 2021

Zillow Group Inc. (Z) is an Internet-based real estate company that has historically focused on deriving ad revenue from third-party brokers on online marketplaces such as Zillow.com, Trulia, and HotPads. More recently it has shifted its focus to iBuying via the Zillow Offers platform.

The company is benefiting from strong momentum in the IMT and Mortgage segments. It is also positioned to gain from increased demand in residential real estate. This demand should drive performance in the Homes segment in the years ahead.

Z had $4.6 billion cash as of the end of the most recent quarter, compared with only $1.3 billion in short-term debt. The company also has a low debt-to-equity ratio of 0.5. Sales have grown an average of 49.4% per year over the past three years and are expected to rise 205.5% year over year in the current quarter,

However, the stock appears overvalued with a trailing P/E of 143.49 and a forward P/E of 63.69. Z has been showing bearish momentum since mid-February as shown in the chart below.

Take a look at the 1-year chart of Z below with added notations:

Z has been trending lower since February and has now fallen into a sideways trading range over the past several weeks. The range’s resistance is at $100 (red), while the support level is at $90 (green).

Z is currently in the middle of the range, but at some point, the stock will have to break out of it, one way or the other.  The possible long position in the stock would be on a breakout above $100. The ideal short opportunity would be on a break below $90.

Z shares were trading at $94.32 per share on Thursday morning, down $0.17 (-0.18%). Year-to-date, Z has declined -27.33%, versus a 19.46% rise in the benchmark S&P 500 index during the same period.

Author: Christian Tharp