On Friday, Roth/MKM adjusted its outlook on Fathom Holdings Inc. (NASDAQ:FTHM), reducing the price target to $3.50 from the previous $4.50, while continuing to endorse the shares with a Buy rating. The revision follows Fathom Holdings' first-quarter performance, which didn't meet expectations in terms of transactions and profitability, as well as a second-quarter guide that also fell below anticipations.
Despite the lower-than-expected results, Roth/MKM highlighted some positive developments within the company. The expansion of ancillary services, including mortgage and title offerings, is contributing to an increase in gross profit as the year moves forward. The firm also noted the shift of more agents to a new fee structure as a positive change.
The analyst pointed out that if Fathom Holdings continues to see favorable results from its ancillary services and expansion efforts, it could experience an acceleration in year-over-year gross profit growth in the second half of 2024. This growth is expected to be bolstered by the recent sale of the company's insurance business, which has provided additional liquidity.
This increased financial flexibility is anticipated to enable Fathom Holdings to pursue acquisitions of small teams more aggressively. Such acquisitions are expected to bring in more teams and higher-producing agents, which could further enhance the company's performance in the latter part of the year.
InvestingPro Insights
As Fathom Holdings Inc. (NASDAQ:FTHM) navigates through its financial year, real-time data and insights from InvestingPro can offer a deeper understanding of the company's current market position. The company's market capitalization stands at a modest $30.33 million, reflecting its size within the industry. Despite the challenges highlighted by Roth/MKM, Fathom Holdings exhibits a strong revenue base with last twelve months as of Q4 2023 revenue reported at $345.23 million. However, this figure also points to a revenue decline of 16.4% over the same period, indicating potential headwinds in sales growth.
InvestingPro Tips suggest that while net income is expected to grow this year, the company is quickly burning through cash and has been identified as having weak gross profit margins. These factors may contribute to the high price volatility observed in the stock, which has seen significant price decreases over various time frames, including a 74.61% drop in the one-year price total return as of early 2024. Additionally, the company does not pay dividends, which could be a consideration for income-focused investors.
For those considering an investment in Fathom Holdings, it's worth noting that the company is trading at a low revenue valuation multiple and that its liquid assets exceed short-term obligations, which may provide some financial stability. With these insights in mind, investors can explore further InvestingPro Tips to make informed decisions. There are an additional 15 InvestingPro Tips available for Fathom Holdings at https://www.investing.com/pro/FTHM. Readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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