On April 1, Compass (COMP) had a successful debut on the stock market. On its first day of trading on the NYSE, Compass stock surged 11.9 percent. The company plans to raise $450 million in the offering. What’s the forecast for COMP stock in 2021? Is it a good long-term investment?
Founded in 2012, Compass is a real estate brokerage company with over 19,000 agents nationwide. For residential real estate brokers, the company offers an end-to-end platform that includes cloud-based software for customer relationship management, marketing, client support, and other features. The SoftBank-backed company filed S-1 paperwork with the U.S. SEC earlier in March.
Compass IPO performance
On April 1, Compass stock started trading on the NYSE under the ticker symbol "COMP." The stock opened at $21.25—up 18.1 percent from its IPO price. Compass stock closed 11.9 percent higher that day at $20.15.
Compass is offering 25 million shares in the IPO at $18 per share. The company decreased the number of shares it planned to sell by about one-third and its top price range by over 25 percent. Initially, the company planned to offer 36 million shares for $23–$26. The IPO is set to close on April 6, subject to customary closing conditions.
The net proceeds from the offering will be used for general corporate purposes and working capital, including sales and marketing, research and development activities, and capital spending. Goldman Sachs, Barclays, and Morgan Stanley are the lead underwriters for the proposed offering.
Meanwhile, shares of British food delivery app Deliveroo fell as much as 31 percent on its first day of trading on the London Stock Exchange. The Amazon-backed company faces criticism for its labor practices and corporate governance.
Compass stock forecast
The outlook for Compass stock looks very promising. The company estimates its serviceable addressable market in the U.S. to be about $180 billion and its total addressable market globally to be over $570 billion. Compass differentiates itself from other real estate firms by emphasizing technology to enhance agents’ success.
In the prospectus, Compass said, “There are over 86,000 brokerage firms in the U.S. and the overwhelming majority have neither the technological expertise nor the capital to build the software and services their agents need to thrive.” In 2020, the company generated revenue of $3.7 billion, which represents a growth of 56 percent YoY. Compass’s net losses decreased to $270 million in 2020 from $388 million in 2019.
The Compass IPO is expected to result in a $9.5 billion fully diluted market value. The company is trading at a 2020 EV-to-sales multiple of 2.6x. In comparison, Opendoor Technologies, Zillow Group, and Redfin are trading at NTM EV-to-sales multiples of 2.9x, 5.6x, and 5.0x, respectively. In December 2020, Opendoor Technologies went public after merging with Chamath Palihapitiya-backed blank-check company Social Capital Hedosophia Holdings II.
COMP stock is a good long-term investment.
COMP stock looks like a good buy based on its attractive valuations and strong growth outlook. The company's software products save realtors time and allow them to offer quality service to their clients. In 2020, Compass was involved in residential real estate transactions amounting to $152 billion compared to $34 billion in 2018. Compass is well-positioned to capture meaningful revenue from related services as it continues to broaden and diversify its products within the real estate market.