Hey there. We actually just sent an e-mail out on REAL, removing it from the Bull List. Here is the highlight of the e-mail:
After disappointing results yesterday, we are effectively moving to Neutral status on Real Matters (TSX:REAL), with the intention of removing it from the Bull List.
However, as I'll mention below again, Mat and I are keeping our Real Matters shares. We still believe in the long term prospects of the company, the future has just become a bit more uncertain, and we'd like to reserve our Bull Lists for those we have the highest conviction in.
The main reason for our decision is the short to medium term uncertainty around the company. U.S. Title volumes were significantly impacted this quarter and dropped by 22.2% YoY.
Given they have shifted resources towards landing a Tier 1 client, margins were compressed which lead to a miss on earnings. The good news is that it is winning new clients and increasing market share across most of its business lines.
Management also ramped up share repurchase activity as it bought back 4.4M shares, up from the 1.8M it purchased in the previous two quarters combined.
Unfortunately, it seems like REAL will continue to suffer from short-to-mid term uncertainty as the allocation of resources to land Tier 1 clients is negatively impacting profitability. This likely won’t change until they land and onboard said Tier 1 clients. For this reason, we are moving to the sidelines.
While we still believe in the long-term prospects of the company, we expect uncertainty to result in muted share price activity. Again, Mat and I remain committed to the company and have no intentions of selling our shares.
The company reiterated its 5 year guidance in its most recent quarter, and Mat and I are willing to be patient and endure the short term volatility. We will have an updated report for you in the next few days, and if you have any questions, feel free to utilize the Q and A or the Discord.
In regards to your entry point, it is hard to argue that REAL is at rock bottom right now. However, entering now presents a bit more speculation risk. If you're going to do so, do it with proper asset allocation. A key example of this is the fact when I first purchased REAL, it made up around 1% of my portfolio. This has significantly reduced the overall blow to my portfolio because of its underperformance.