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Wed, April 1 at 7:00PM ET

Zillow Group, Inc. (Z) Stock Should Show Up the Bears

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When real estate data provider Zillow Group, Inc. (NASDAQ:Z) took a 20% dive back in August, you would have thought the housing market was collapsing. After all, summer home sales were soft across several key segments — pretty much all property worth less than $250,000 — and the Z stock bears said the Federal Reserve makes things worse with every interest rate hike.

Zillow stock earningsBut they don’t know Zillow. This is a company that has developed new products and revenue streams to expand its top-line cash flow every quarter for years across the ebb and flow of housing sales. The old direct relationship with realtor activity no longer applies — Z stock now rakes in money facilitating mortgages, rental applications and just about every other phase of the residential cycle.

The clearest way to demonstrate this is by mapping Zillow revenue against those supposedly all-important existing home sales figures.

The second quarter was a little sluggish this year, with all the realtor hustle in the country only adding 30,000 extra contracts onto last year’s healthy base of 1.64 million sales. And yet Z boosted its top line 28% against that 1.8% macro growth. That’s not a one-to-one correlation. That’s a multiplier on every dollar circulating in the real estate market.

Similar logic applies where the Federal Reserve is concerned.

Even though overnight lending costs have edged up in the last few years, what’s important here are mortgage rates, which take some cues from the Fed but mostly oscillate on how much lenders want to attract new money. A standard 30-year fixed loan right now is almost exactly as cheap as it was in late 2014, when the central bank started moving. Meanwhile, Zillow stock revenue has easily doubled.

Tracking Triple-Digit Growth for Z Stock

A lot of that money is finding its way to the company’s bottom line. EPS growth isn’t quite as dramatic as management hoped a few months back, but they’re still tracking close to 200% richer profit here than last year and continued fast expansion from there.

While a lot of that triple-digit growth is already baked into the stock, it has been there for over a year now.

Wall Street’s models haven’t softened either. Consensus was looking for about 50 cents a share for full-year 2017 earnings back in August and that target hasn’t changed. It’s still the same as what the models predicted in the summer of 2016, a few months before Z stock rallied from $39 to $51.

And with the company asserting that its margins are only getting richer on every dollar coming in the door, I wouldn’t be surprised if those models need upward revisions soon.

Zillow stock is set to report its quarterly numbers around Halloween. This could be all the catalyst the analysts need to feed the bulls, so this stock is definitely worth a look before its report rolls out.

Hilary Kramer is the editor of GameChangersBreakout StocksHigh Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.

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