We came across a bullish thesis on Fathom Holdings Inc. (FTHM) on Antarctic Circle Capital’s Substack by Antarctic Circle Capital. In this article we will summarize the bulls’ thesis on FTHM. Fathom Holdings Inc. share was trading at $2.85 as of Sept 12th.
An aerial view of a real estate property with multiple buildings and pavement in the foreground.
Fathom Holdings Inc., a technology-driven real estate services company based in Cary, North Carolina, operates through a cloud-based platform offering residential brokerage, mortgage, title, insurance, and SaaS solutions. Despite the challenging real estate market, its innovative model and strategic acquisitions provide a strong foundation for growth. Fathom’s focus on expanding its market presence and integrating technology with traditional services has led to robust revenue growth and a strong cash position, setting the stage to capitalize on opportunities in a recovering market.
The company’s stock appears significantly undervalued, having plummeted 96% to near all-time lows, with a market capitalization of approximately $40 million and a price-to-sales ratio of 0.11x. This suggests considerable upside potential, particularly as the real estate market is at its lowest point since 2009. Fathom’s business model, which offers greater profitability for agents compared to traditional brokerages, positions it for rapid growth by attracting more agents and increasing both its agent base and revenues. Additionally, a potential reduction in interest rates and a transition to positive EBITDA could dramatically enhance the company’s financial performance and unlock substantial shareholder value. The strong alignment of management with shareholders, evidenced by significant insider ownership and recent insider buying, further supports this outlook.
Fathom operates in an industry currently facing severe headwinds due to elevated interest rates, which have drastically reduced home sales. Despite the challenging environment, housing prices have remained stable due to a significant shortage, estimated at 4.5 to 6.8 million homes. This suggests that transactions may return to normal levels once buyers adjust to the higher rates or if the Federal Reserve lowers rates. The underlying demand for housing remains robust, creating a favorable environment for a potential rebound in home sales, which would benefit Fathom.
Fathom’s flat-fee business model, which allows agents to retain a larger portion of their commissions, distinguishes it from traditional brokers and drives its rapid growth. Despite a revenue decline in 2023 due to reduced transaction volumes, the company’s agent base grew by 14%, underscoring its appeal to real estate professionals. With improving gross and operating margins, Fathom is transitioning from expansion to profitability, with a focus on enhancing EBITDA and reducing cash burn. The company’s strategic shift towards profitability is crucial for stockholders, as increasing revenues and expanding margins are expected to improve EBITDA over time.
Fathom’s growth trajectory remains strong, with projections indicating a 20-25% annual increase in the number of agents, potentially leading to significant revenue growth. The company aims to reach 100,000 transactions per year in the medium term, which could generate $40 million in EBITDA. With a 10x EBITDA multiple, this would value the company at $400 million, representing a potential 10x increase from its current valuation.
In conclusion, despite the current market challenges, Fathom Holdings Inc. presents a compelling investment opportunity due to its unique business model, significant growth potential, and alignment of management with shareholders. The company’s financial stability, low debt, and strategic positioning suggest it is well-poised to capitalize on a market recovery, offering substantial upside potential for investors.
Fathom Holdings Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 5 hedge fund portfolios held FTHM at the end of the second quarter which was 6 in the previous quarter. While we acknowledge the risk and potential of FTHM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FTHM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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