Sometimes there are industries that are ripe for disruption. One of the worst, most convoluted industries that exist at the moment is that of real estate. This market is filled with outdated actors such as grinning real estate agents, monopolistic or oligopolistic real estate organizations, and opportunistic lawyers, each of which charges their own huge fees on real estate transactions.
Of all the industries that I hope technology disrupts, it is real estate. I love the way e-commerce has made shopping easier and more convenient, but I still miss the small and even large stores that once helped shape our communities. Real estate, however, is an antiquated, bloated system that needs to be updated for the betterment of all.
A step in the right direction, at least, was opening up pricing data to the public. Although some real estate boards argued that they were “protecting” buyers and sellers, it is hard to imagine how, especially in this day and age, limiting consumer access to pricing data was a good thing.
That is why when I see any technology company that is in any way entering the space, I feel extremely excited about the possibility of major disruption to this antiquated system. Hence, when I heard of Real Matters (TSX:REAL), I immediately wanted to take a look at it.
Real Matters, if you haven’t heard of it, is a small company (market cap of just under a billion) that focuses on providing a platform to simplify the mortgage lending and appraisal business. The company is aiming to disrupt the current, inefficient, title and closing market in Canada and the United States.
Fundamentally, this real estate company appears to be in excellent shape. As of the last quarterly report, Real Matters had US$60 million in cash on hand and no debt. In fact, it had more cash than the totality of all of its liabilities, which sat at around US$23.5 million as of its Q3 2019 report.
Now, often when you see a lot of cash sitting on the balance sheet of a relatively new company, you will notice that much of that cash came at the expense of shareholders through continuous share sales. It’s not so with Real Matters. Its share count has remained relatively stable.
The company also posted year-over-year revenue growth of over 24% in Q3, meaning that this is no slouch in the growth department. It also had a net income of $0.05 a share in the quarter. Imagine that: positive net income from a new company. What a novel idea.
Of course, for all its positive attributes, this is not a cheap company. It is still firmly in the growth department. Its price-to-earnings ratio is very high, and there is a risk of downside correction if the company makes poor choices.
The bottom line
This is a long-term buy if you hate the current real estate paradigm. Companies like this will be in demand and will displace the inefficient, disgraceful system that is currently in place. There is a big real estate out there to disrupt. This is one company I am going to put some money into soon.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Kris Knutson has no position in any of the stocks mentioned.