Unveiling the Undervalued Gem in Real Estate

Thesis Summary

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The rock-bottom price-to-cash flow multiple, suggests the market expects RE/Max Holdings, Inc. RMAX 0.00%↑ to remain perpetually unprofitable. RMAX has never traded this low despite doubling revenue since the company first IPO’d in October 2013 at $22 and opening in the market at $26.25. This is a stark contrast to reality – RMAX has been consistently cash flow positive since its IPO in 2013. The recent stock price plunge can be largely attributed to the company's pause on its capital allocation program, where shareholders had previously seen RMAX return excess cash to shareholders through dividends and buybacks. Additionally, the industry is under some change which we believe the affects of the change are overblown post-settlement of the industry wide conspiracy case. Importantly, RMAX remains a highly recognized household name in the real estate industry, boasting superior agent productivity compared to even the largest brokerages. Home buying is an infrequent, highly personal activity which technological advances can not replace in the foreseable future. Excluding the impact of growth initiatives, RMAX currently trades at a mere 3-4 times normalized 2027 free cash flow of about $60 to $70 million, a significant discount that fails to reflect the company's underlying financial strength, brand value and margin of safety through its franchise agreements with its vast franchisee office network. In 1 to 2 years we should see the $62 million stock buyback progam reinitiated and dividends payouts.

Table of Contents

• RE/Max Holdings: A Franchise Focus in a Fragmented Industry

• Boom, Bust, and brokerages: A Cyclical Dance with Inventory and Interest Rates

• The Power of Decentralized Growth: The RE/Max Franchise Model

• Historical Resilience: A Lesson from the Great Recession

• Strong Unit Economics Fuel Growth

• Current Headwinds and Future Outlook

• Valuation

• A Few Caveats

• The Bottom Line Conclusion

RE/Max Holdings: A Franchise Focus in a Fragmented Industry

RE/Max Holdings stands out in the real estate brokerage industry. Unlike some competitors that directly manage and own their "book of business” (and the commission stream that comes with them), RMAX 0.00%↑ operates a franchise model in the real estate brokerage industry. They're also increasingly franchising out mortgage brokerages. This business realty brokerage model allows RMAX to assume less exposure to the cyclicality of commission revenue allowing for far more sustainable and predicable cash flow.