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In 2020, the U.S. stock market saw a spate of initial public offerings (IPOs) of companies merging with a special purpose vehicle (SPAC), and by 2021 there were already twice as many as last year’s SPAC-based IPOs. Under this tide Home Holdings (NYSE: DOMA) stands out as an interesting investment opportunity.
Doma went public in July through a SPAC merger with Capitol Investment Corporation V. The company offers a technology platform that automates many of the complex processes involved in real estate transactions.
As such, Doma is active in the field of real estate technology, which is often referred to as proptech. Proptech companies are trying to disrupt the numerous outdated practices that are ingrained in the real estate industry.
How is Doma doing in this endeavor? Let’s take a look at the proptech expert’s market opportunity and business performance to understand the long-term potential of an investment in his stock.
Doma market opportunity
According to the Wharton School, the real estate sector is one of the few in the US “that has created immense wealth with little or no technology expertise and interest.” The slow adoption of the technology in the industry gives Doma the opportunity to improve and modernize its property operations.
It currently focuses on the final portion of real estate transactions such as property, fiduciary and settlement services. The company charges for these services, which is typical industry practice, but Doma has one advantage: the ability to streamline the closing process through its cloud-based software platform that leverages features like data science and machine learning.
For example, Doma states that its platform can reduce the typical three- to five-day title underwriting process to less than a minute. Its technology offers efficiencies like an automated title search, finding warning signs like a lien, and relaying that information to the relevant parties involved in the real estate transaction.
Doma estimates its focus area has an overall addressable market opportunity of $ 23 billion, and that number could grow in the future. According to the National Association of Realtors, sales of existing U.S. homes exceeded 5 million last year with an average home price of $ 296,700. It is estimated that home sales will rise to over 6 million homes by 2022.
Doma sees success in the real estate industry gaining momentum. Its client list includes huge banks like chase and Wells Fargo. The booming sales growth also shows the increasing acceptance of the company’s solutions in industry.
Doma posted revenues of $ 130 million in the second quarter, an increase of 29% over the previous year. In the first half of 2021, the company saw revenue jump 51% year over year to $ 257.8 million, compared to $ 171.2 million in 2020.
Further growth is imminent. At the end of the second quarter, Doma’s underwriting services were in 39 states while its title and fiduciary operations were in 22 states. The company is working to expand its services to the rest of the United States
The company has even greater opportunities in view for the coming years. The platform is designed to go beyond the closing portion of real estate transactions. Management intends to expand to other areas such as home valuation and loan service processes.
Despite the growth, Doma is not perfect. The company posted a net loss of $ 23.3 million in the second quarter. This is an increase over the prior year net loss of $ 6.3 million.
However, the expanding net loss is not a red flag. Many tech companies operate at losses for years to get early growth before they reach profitability, and Doma is still a very young organization. The company was founded in 2016.
In addition, Doma’s balance sheet is healthy. Total assets of $ 434.5 million for the second quarter exceeded total liabilities of $ 256.9 million and the company had $ 158.5 million in cash.
Is the Doma share a buy?
Doma is a company with many positive characteristics. It addresses an area ripe for disruption and its year-on-year sales growth shows that the company is thriving.
For the full year 2021, sales of at least 475 million US dollars are expected. This would be the third straight year of revenue growth, after $ 410 million in 2020 and $ 358 million in 2019. It may not be the kind of explosive growth seen in some young tech companies, but this is to be expected given the slow technology adoption in the real estate industry.
Doma’s financial health is solid and offers many opportunities for further sales growth in the years to come. These factors make this latest IPO stock a worthwhile investment.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.