RMAX: A “Buy” or “Sell” Proposition for Q1 of 2019?

On December 20th, Bank of America downgraded shares of Re/Max (NYSE:RMAX) to a sell rating with a $56.00 price target on the financial services provider’s stock. Analysts from Zacks also downgraded RMAX to a “sell” rating in a later report. Other analysts have rated the stock as a buy or hold on an earlier earnings report from RMAX.

As of this writing, RMAX shares are down to $30.92 from a six-month high of $56.25 per share. Despite the negative trend, there is good news for those vested in the stock. A recent  Zacks Equity Research report the day before Christmas spotlighted RMAX in a crisp comparison with Jones Lang LaSalle (JLL) which revealed a lot about the short and long-term potential of both stocks. As I type this, Jones Lang LaSalle retains a Zacks Rank of #2 (Buy), while RE/MAX is lagging with a Zacks Rank of #4 (Sell). But, the Zacks report goes on to reveal why JLL is rated so much higher than RMAX.

Key among the other variables Zacks is the fact JLL has a P/B ratio of 1.59, while RMAX has a P/B of 7.17. As a reminder, the P/B ratio is what Zacks and other analysts use to compare a stock's market value against its book value. The basic equation is the result of subtracting total assets minus total liabilities. The corresponding value is the reason JLL holds a Value grade of A, against RMAX with a Value grade of C. Other variables in the report explain why so many analysts have devalued RMAX recently. JLL currently has a forward P/E ratio of 11.45, against RMAX forward P/E of 12.94. Other metrics paint a clearer picture for the struggling stock.

Another kind of predictor called the Altman Z score was developed a few decades ago by an. Published by Edward I. Altman back in 1968, the Altman Z can predict a company going bankrupt within 2 years with 90% accuracy. Currently, RMAX Altman Z score of 3.734334, which indicates the company is unlikely to default in the next couple of years. RMAX stock stands nearly -52.83% off versus a 52-week high and 3.81% off from the 52-week low, with the current shares currently owned by investors at 18.14 million. Mixed as these signals seems to be, it’s good advice for investors interested in quality ratios of RMAX to into consideration the Gross Profitability of the stock, which is currently 0.498758. Another factor of confidence for RMAX is the moderately low Montier C-Score of 2.0, which indicates the company is unlikely to be cooking the books. A million mixed signals, so what’s the bottom line on RMAX?

Even the most profitable and stable stocks face setbacks from time to time. The mixed or even negative signals in media make the trading decision a tricky job at best. It’s a certainty that making these decisions based on one piece of data is a perilous strategy, but deciphering myriad equations and s are no less hazardous. Negative information about a company usually prompts investors to sell quickly without delving into the deeper metrics. The same is true where positive intelligence is concerned. As for RMAX value now, my recommendation in a mixed bag of appraisals is to follow the big money. Having said that, BlackRock Inc. increased its position in Re/Max by 6.5% during the 2nd quarter of 2018, and now owns 2,432,754 shares of the financial services provider’s stock worth $127,598,000. BlackRock, for anyone who is not aware, is not in the business of losing investments. So, the “sell” rating put on RMAX means “buy” at the right price in my book. The next quarter of trading will tell, but my money is on holding the shares.