RE/MAX (RMAX)

Real estate franchise company RE/MAX (NYSE:RMAX) announced better-than-expected revenue in Q1 CY2025, but sales fell by 4.9% year on year to $74.47 million. Revenue guidance for the full year exceeded analysts’ estimates, but next quarter’s guidance of $72.5 million was less impressive, coming in 4.2% below expectations. Its non-GAAP profit of $0.24 per share was 35.2% above analysts’ consensus estimates.

Company Overview

Short for Real Estate Maximums, RE/MAX (NYSE:RMAX) operates a real estate franchise network spanning over 100 countries and territories.

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.

RE/MAX’s primary competitors are Realogy Holdings (NYSE:RLGY), Zillow (NASDAQ:ZG), Redfin (NASDAQ:RDFN), eXp World (NASDAQ:EXPI), and private companies Keller Williams Realty and Century 21 Real Estate.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, RE/MAX’s sales grew at a weak 1.5% compounded annual growth rate over the last five years. This was below our standards and is a rough starting point for our analysis.

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. RE/MAX’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 6.5% annually.

We can better understand the company’s revenue dynamics by analyzing its number of agents, which reached 146,126 in the latest quarter. Over the last two years, RE/MAX’s agents were flat. Because this number is higher than its revenue growth during the same period, we can see the company’s monetization has fallen.

This quarter, RE/MAX’s revenue fell by 4.9% year on year to $74.47 million but beat Wall Street’s estimates by 1.3%. Company management is currently guiding for a 7.6% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 2.3% over the next 12 months. Although this projection is better than its two-year trend, it's tough to feel optimistic about a company facing demand difficulties.

RE/MAX’s operating margin has been trending up over the last 12 months and averaged 4.5% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports lousy profitability for a consumer discretionary business.

In Q1, RE/MAX generated an operating profit margin of 7.2%, up 1.4 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for RE/MAX, its EPS declined by 8.9% annually over the last five years while its revenue grew by 1.5%. This tells us the company became less profitable on a per-share basis as it expanded.

In Q1, RE/MAX reported EPS at $0.24, up from $0.20 in 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 expects RE/MAX’s full-year EPS of $1.33 to shrink by 1.5%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

RE/MAX has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 12.1% over the last two years, slightly better than the broader consumer discretionary sector.

RE/MAX’s free cash flow clocked in at $3.97 million in Q1, equivalent to a 5.3% margin. This cash profitability was in line with the comparable period last year but below its two-year average. In a silo, this isn’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

RE/MAX historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.1%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, RE/MAX’s ROIC averaged 1.5 percentage point increases each year. This is a good sign, and we hope the company can continue improving.

RE/MAX reported $89.11 million of cash and $461.2 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 $97.99 million of EBITDA over the last 12 months, we view RE/MAX’s 3.8× net-debt-to-EBITDA ratio as safe. We also see its $17.25 million 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 how significantly RE/MAX blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also glad its full-year revenue guidance slightly exceeded Wall Street’s estimates. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The stock traded up 3.8% to $8.10 immediately after reporting.

Updated: May 16, 2025 at 10:06 PM EDT

Are you wondering whether to buy RE/MAX or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

We see the value of companies helping consumers, but in the case of RE/MAX, we’re out. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. On top of that, RE/MAX’s declining EPS over the last five years makes it a less attractive asset to the public markets, and its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

RE/MAX’s P/E ratio based on the next 12 months is 5.9x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $9 on the company (compared to the current share price of $7.77).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.