When buying stocks, cheap is good. Or at least cheap can be good. The trick for investors is to identify companies that are performing well but have stocks that are trading at a discount. This can sometimes be a challenge, but in the case of Red tuna (NASDAQ: RDFN) and Magnite (NASDAQ: MGNI), now is a great time to buy both, and each is worthy of every investor’s wallet.
Anyone who has bought or sold a home knows that the process can be stressful and costly. Redfin is trying to change that with some unique twists on an old industry. First of all, its agents are employees who do not receive a commission. Second, Redfin only charges sellers a commission of between 1% to 1.5%, as opposed to the traditional 2.5% to 3%. The company also reimburses buyers for a portion of these commissions. Redfin’s long-term vision is to become a one-stop-shop for the buying and selling experience, combining brokerage, mortgage and title services into one technology platform. The company has even entered the iBuying space, where it will buy a house and sell it for the owner.
After a difficult time during the pandemic, things have changed for Redfin, peaking in the last reported quarter. The third quarter saw 128% year-over-year revenue growth and progress towards profitability with a net loss of $ 19 million, compared to the net loss of $ 36 million recorded in the first quarter. The gross margin also increased by 37%, although the gross margin declined slightly from the third quarter of 2020. Management attributed this to higher revenues generated by its low margin real estate business.
On the customer side, things are also looking good. Redfin reached a market share of 1.16%, up from 1.04% in the third quarter of 2020, meaning the company is slowly gaining market share. Average monthly visitors to its website and real estate service transactions declined slightly year over year, but that’s an outlier of a quarter in 2020, when those two metrics saw big jumps.
Redfin is trading at a price-to-sell ratio of 2.7, which means shares are about as expensive as they were in the spring of 2020 when the company was at the worst of the pandemic. Redfin is now in a much stronger position which makes this valuation very attractive.
Magnite operates a platform to help connect digital advertising buyers and sellers, primarily in the Connected Television (CTV) space. With the explosion of streaming TV and online and mobile advertising, Magnite operates in a rapidly growing industry and has emerged as the largest independent sell-side platform (helps those with ad space available to fill it with advertisements) for those digital advertisements.
Magnite took advantage of the tailwinds in this industry and performed well. When the company released its third quarter results, revenue was up 116% year-over-year, building on a 62% year-over-year increase in the third quarter. quarter of 2020. Of this revenue growth, the vast majority comes from connected TV, which is basically all streaming services that have emerged in the last few years. In the third quarter, CTV accounted for 38% of overall revenue, compared to 18% in the previous year quarter. Management views CTV as a critical part of its business and during 2021 acquired two companies, SpotX and SpringServe, to help solidify its position in this space.
Even if you exclude the acquisitions of SpotX and SpringServe, CTV’s third quarter revenue grew 51% year-over-year. It’s clear that CTV’s revenue will drive growth for the foreseeable future, and at this point, “CTV” has been mentioned 56 times when calling the results.
Magnite appears to be well positioned to profit from the shift in sales from traditional TV ads to connected ads, and although the company is still in the early stages of this growth trend, its stock can be bought at a very attractive price. Since its peak in early 2021, Magnite’s price-to-sales ratio has been plummeting, ending Jan. 7 at 5 a.m. While year-over-year income can continue to grow triple digits, as it did over the past two quarters, the stock is a steal at this valuation. However, Magnite is well enough positioned in a growing industry that even if the company stumbles a bit, it is still valued enough to make buying stocks an attractive proposition.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.