When a stock is in a downtrend and the company comes out with bad news, on most occasions the issue declines in price in the short term. Whether or not longer-term investors use the weakness in price to accumulate shares of the issue, regardless of the recent news, is the question.
The above scenario applies to Zillow Group Inc. Z, which is Monday's PreMarket Prep Stock Of The Day.
Upsizing To Downsizing: After ending 2020 at $129.80, the issue ballooned to $208.22 in February and sharply reversed course. From going positive for the year by 60%, it is now in the red for the year by 33% at its current price of $87.
Knocking On The Door Of A Rally: Until Monday’s price action, the issue was attempting to have only its second green month since February, rallying hard off its Oct. 4 low ($83.93).
Zillow had surpassed its September close ($88.14), and reached its highest closing price since making the low on Thursday, Oct. 14, when it closed at $95.39. It backed off that level on Friday, but not by much, ending the week at $94.97.
House Party Interrupted: Before the open Monday, the company announced it was pausing its home purchasing program to work through the renovation and selling of homes it has already purchased.
As a result, the company will not buy any new homes for the remainder of the year in order to clear up its inventory glut.
PreMarket Prep's Take: When the issue was being discussed on the show, it was deep in the red, trading at the $87 area. Co-host Dennis Dick pondered if investors were going to shrug off the news and “buy the dip.”
“After last week’s rally in the broad market, people are looking to buy. It does not work in all sectors, all the time, but [it works] a lot,” Dick said. He cited the multiple lows at the $85 area as an area of major support.
The full discussion on the issue from Monday’s show can be found here:
Gene Munster’s Take On The Sector: Gene Munster of Loup Funds had this to say about online real estate last month.
Munster said there could be a massive long-term buying opportunity at some point among beaten-down stocks like Opendoor Technologies Inc OPEN, Zillow and Redfin Corp RDFN.
“I am a believer in ibuying. I think it’s how people want to transact. I’ve never sold my home through ibuying. It’s about a half of a percent [fee]. But the research we’ve done, if you’re under 40 years old, the likelihood that you would sell via ibuying is 70%,” he said at the time.
Z Price Action: After a much lower open ($87.10 vs. $94.97) Monday, the issue continued in that direction until it bottomed just above the low for the move ($83.93 at $84.10) and reversed course. As of 2:30 p.m., it has rebounded back into the mid-$86 handle.
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