Compass (COMP)

Real estate technology company Compass (NYSE:COMP) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 23.6% year on year to $1.85 billion. The company expects next quarter’s revenue to be around $1.64 billion, close to analysts’ estimates. Its GAAP loss of $0.01 per share was $0.01 above analysts’ consensus estimates.

Company Overview

Fueled by its mission to replace the "paper-driven, antiquated workflow" of buying a house, Compass (NYSE:COMP) is a digital-first company operating a residential real estate brokerage in the United States.

Technology has been a double-edged sword in real estate services. On the one hand, internet listings are effective at disseminating information far and wide, casting a wide net for buyers and sellers to increase the chances of transactions. On the other hand, digitization in the real estate market could potentially disintermediate key players like agents who use information asymmetries to their advantage.

Compass's primary competitors include Zillow (NASDAQ:ZG), Redfin (NASDAQ:RDFN), and eXp World (NASDAQ:EXPI).

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Compass’s 16% annualized revenue growth over the last five years was decent. Its growth was slightly above the average consumer discretionary company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Compass’s annualized revenue growth of 16.5% over the last two years aligns with its five-year trend, suggesting its demand was stable.

Compass also discloses its number of transactions, which reached 67,886 in the latest quarter. Over the last two years, Compass’s transactions averaged 15.5% year-on-year growth. Because this number aligns with its revenue growth during the same period, we can see the company’s monetization was fairly consistent.

This quarter, Compass reported robust year-on-year revenue growth of 23.6%, and its $1.85 billion of revenue topped Wall Street estimates by 3.2%. Company management is currently guiding for a 18.8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 13.7% over the next 12 months, a slight deceleration versus the last two years. Still, this projection is above the sector average and indicates the market is baking in some success for its newer products and services.

Compass’s operating margin has risen over the last 12 months, but it still averaged negative 2.2% over the last two years. This is due to its large expense base and inefficient cost structure.

This quarter, Compass generated a negative 0.4% operating margin.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Although Compass’s full-year earnings are still negative, it reduced its losses and improved its EPS by 49.5% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.

In Q3, Compass reported EPS of negative $0.01, in line with the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast Compass’s full-year EPS of negative $0.11 will flip to positive $0.10.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Compass has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.9%, lousy for a consumer discretionary business.

Compass’s free cash flow clocked in at $73.6 million in Q3, equivalent to a 4% margin. This result was good as its margin was 1.8 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

Compass reported $170.3 million of cash and $481 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $251.8 million of EBITDA over the last 12 months, we view Compass’s 1.2× net-debt-to-EBITDA ratio as safe. We also see its $500,000 of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by Compass’s optimistic EBITDA guidance for next quarter, which blew past analysts’ expectations. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 1.5% to $7.90 immediately following the results.

Updated: December 4, 2025 at 10:05 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Compass.

Compass doesn’t pass our quality test. To kick things off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its low free cash flow margins give it little breathing room. On top of that, its operating margins reveal poor profitability compared to other consumer discretionary companies.

Compass’s P/E ratio based on the next 12 months is 18.1x. This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $10.22 on the company (compared to the current share price of $10.40).