La Rosa Holdings Corp (NASDAQ: LRHC) is not only getting bigger; it's getting smarter. And both are happening faster than anyone might have expected. The even better news for the company and its investors is that the trend is expected to continue, not by coincidence, but instead by this innovative real estate company doing the right things at the right time to create higher and sustainable value for itself and its shareholders.
The proof is easy to find. In fact, La Rosa Holdings is providing tangible evidence supporting that bullish thesis, including leveraging post-IPO strength to acquire net-income-producing assets, launching a revolutionary AI-empowered tool to support its roughly 2450 agents, and, most recently, creating an incentive plan allowing agents to earn equity in the company. That combination is shifting LRHC's growth pace speed from hyper to warp and, more importantly, is accruing real-time value from a La Rosa roll-up strategy that contributes to top and bottom-line growth. Proving that measure, LRHC completed two immediately accretive acquisitions in October, purchasing a controlling interest in two franchised offices in Florida that delivered roughly $20.6 million in combined 2022 revenues and, better still, both generated net income.
While impressive, particularly that they should help double 2024 revenues, those deals are expected to be the first of several more. Therefore, trading ahead of those potentials may be a wise consideration, especially with current share prices already presenting a considerable disconnect between assets, opportunities in play, and price. As a matter of fact, the recent weakness in LRHC stock, despite its tangible proof of value creation, presents far more than a ground-floor investment opportunity; it's a bargain-basement one.
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Acquisitions, Strategy, And Peer Multiples support Higher Valuation
That presumption is more than warranted; it's justified when comparing a fast-growing LRHC to sector peers, including eXp World Holdings (NASDAQ: EXPI), Fathom Holdings (NASDAQ: FTHM), and The Real Brokerage Inc. (NASDAQ; REAX), which have all found favor and inclusion in growth stock portfolios. That trend should continue.
Remember, despite short term challenges, investors, especially sector-specific ones, need to take advantage of investment opportunities presented by those companies proving their ability to accrue value from an over $100 trillion sector. La Rosa Holdings offers a compelling one.
Contributing to that case, LRHC reiterated the value it expects to accrue through its Agent Incentive Plan (AIP). That package clearly demonstrates LRHC's commitment to empowering agents and solidifying their role as agent-owners, which the company believes represents the future of real estate. The AIP was adopted in 2022 but will be more effective post-IPO as a voluntary compensation plan for its agents.
Specifically, the AIP supports LRHC real estate agents seeking to invest in the company, offering eligible agents an opportunity to acquire restricted common stock at a 20% discount to the market price (calculated based on the terms of the plan) by utilizing a portion of their commissions from transactions as described in the plan, which is designed to align the long-term interests of agents with LRHC's by empowering them as co-owners of the brand they help build. LRHC is doing much more to attract agent talent.
In October, LRHC announced the launch of JAEME, its proprietary real estate artificial intelligence (AI) assistant created to support and inspire its agents with personalized content to drive marketing, efficiency, and sales. Through JAEME, LRHC agents get more than a sales platform; they get a virtual assistant able to, among other things, generate compelling property descriptions, facilitate effective e-mail campaigns, and author high-conversion newsletter and video campaigns. It can also create systematic business plans and mine for exclusive lead generations, designed in its entirety to provide services to agents more efficiently and in a modern way, including from mobile devices. Providing those advantages keeps LRHC agents competitive.
As important, it keeps them in the next generation of real estate by keeping pace with, and even leading, traditional real estate office technology, including those like ReMax (NYSE: RMAX), which are also trying to utilize virtual tools to attract talent.
Agent-Centric Differences Are LRHC Advantages
However, comparing LRHC to ReMax beyond having an AI-empowered platform may give too much credit to the latter. Keep in mind that La Rosa Holdings doesn't intend to be part of the old regime. Instead, they are blazing a trail to usher in a new era of how the real estate sector operates through an agent-centric approach to business that can be best described as transformative. That's not an exaggeration.
Turning the current sector commission rules upside down, LRHC pays its agents 100% of the commissions on each residential property sale. That's an appreciable distinction compared to traditional earnings models that pay agents a percentage of a percentage. As expected, that difference is creating a wave of interest in working with LRHC. Deservedly so.
Best described as an agent-centric model, the LRHC platform provides LRHC agents leading technology tools and over $7,000 worth of free marketing, training, coaching, and the ability to close deals quickly and efficiently. Still, agents aren't the only winners from the LRHC model. La Rosa scores its share of income as well, generated from franchising agreements, member dues, and a 10% commission from commercial transactions. Additional revenues are generated from ancillary services like mortgage insurance, title services, and coaching.
Those agent contributions certainly aren't a drain on potential commissions. Currently, agents pay La Rosa monthly dues of $75 and a one-time transaction fee of up to $495, no matter the size of the sale. It's led to LRHC agents keeping the lion's share of the $2.9 billion in total transaction volume last year. That impressive number could be eclipsed this fiscal year as agents utilize the value inherent to LRHC's JAEME platform, noting its abilities to provide its agents a better understanding of their target audience, deliver more personalized content, and generate more leads.
Post-IPO LRHC Benefits From A Running Start
Those aren't the only value drivers. Different from many newly-listed companies, LRHC isn't starting from scratch. They have 35 (and counting) affiliate and franchised offices, an agent headcount of over 2450, and completed over 8,300 transactions last year that generated company revenues of $26.2 million. As noted, revenues are already expected to double after acquiring a controlling interest in two Florida offices. And they may not stop there. LRHC indicated that several other acquisitions are in its pipeline to feed an infrastructure that can support five times its current agent count. In other words, "several" acquisitions may understate LRHC's growth intentions.
Not only that, growth could happen sooner than later, not only by paying 100% commissions but also by providing turnkey solutions to real estate brokers and sales agents seeking financial independence. Those benefits, combined with the support from LRHC, incentivize brokers and agents. Better still, from an LRHC perspective, they also enable LRHC to maintain a high margin, high cash flow business model that benefits from multiple and recurring revenue streams. Of course, money is an excellent motivator, which is why LRHC's model provides its agents nearly 100% of it even after fees.
The innovative model is actually quite simple to understand. Start by assuming a home sold for $350,000. On average, a traditional brokerage model would earn a 3% commission of $10,500. From that $10,500, the brokerage house may make about 30%, or $3,150. The remaining 70% would then pass to the agent, generating $7,350 as a net commission. La Rosa considers that model the old way to incentivize agents.
La Rosa's way can be described in two words: Game changer. How so? By paying its agents the entire $10,500, less the once-monthly association dues and a transaction fee of at most $595, no matter the sale size. That's a nearly 32% pay increase from simply using the marketing power, technology, and trust the La Rosa Holdings brand provides its agents. And keep this in mind. Considering Team La Rosa generated $2.9 billion in transactions last year, a massive amount of dollars stayed in agents' pockets. Moreover, considering the sector's enormous size and with LRHC expanding its current six-state presence, millions more can be directed to rewarding agents' work. That potential is in play, especially as the sticker shock of higher interest rates subsides.
Mortgage Rates Averaged 7.74% Since 1971
That's starting to happen. No one's arguing that purchasing dynamics don't change along with interest rates. They do. However, it's vital to also acknowledge that the current interest rate environment fits into a historical range, with 30-year fixed-rate mortgage rates between April 1971 and September 2023, averaging 7.74%. While a vast difference from the easy-money environment of the past several years, sector analysts expect markets to continue stabilizing, with growth returning in 2024. And with sellers wanting to bank enormous increases in home values over the past five years, sellers will likely oblige.
Therefore, positioning in a company ahead of that inevitability makes professional and financial sense. Remember, in buyer's or seller's markets, the LRHC business model provides the ultimate agent offer: 100% commissions. Good for them is also excellent for LRHC, especially as the company scales operations to maximize its opportunities on both sides of the sale by offering a platform that simplifies the buying and selling process. Moreover, by supporting sellers and enabling agents to leverage their strength in limited and high inventory markets, LRHC provides the best of both business worlds by supporting agents to make a sale and supporting sellers where competitive bidding and multiple offers can create considerable emotional stress.
More simply said, LRHC has created a recipe for deal-making success on both sides of the transaction. That unique creation separates LRHC from others in the sector. Additionally, it can also help widen the gap as LRHC uses its post-IPO capital to penetrate and expand new markets, increase its agent count, and capitalize on shifting market sentiment.
The Right Business Model For The Times
All told it's a recipe that contributes to a sum of LRHC parts value proposition that, at current prices, may be too attractive to ignore. That argument is supported by deals that happened and those expected that are and will create immediate shareholder value. In addition, La Rosa Holdings is proving it has the operational know-how to make its already excellent company even better, an assumption validated by tangibles that justify not only a higher share price but significantly so.
Combining those attributes with LRHC being in the right place with the right business model at the right time, LRHC stock can be described as tremendously discounted. It's fair to suggest that anything less than its $5.00 IPO price may present a value investment opportunity worth seizing. Remember, LRHC has more than tangibles; they have significant potential. And in the few short weeks since its IPO, they are proving they can capitalize on harnessing the value of both through milestones reached, deals done, and those expected, all supporting a common theme: the most probable path of least resistance for LRHC shares is more likely than not, higher.
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