Redfin: Contrasting Analyst Bearishness With Market Optimism

Key Points

• Despite analysts' bearish sentiment, Redfin's shares have experienced a strong turnaround, with significant growth this year.
• The stock is consolidating near a breakout level, indicating potential upward momentum.
• The presence of a high short interest might act as a catalyst for further price.

Shares of real estate company Redfin NASDAQ: RDFN have staged an impressive turnaround this year, with shares up 160% YTD and 183% over the last six months. The recent run shows no signs of slowing down, with shares consolidating near short-term resistance, poised for a breakout higher. With a significant short volume and attractive technical setup, Redfin is an interesting short–medium term long candidate.

Redfin is a residential real estate brokerage company in the United States and Canada. Redfin operates an online real estate marketplace that provides real estate services, helping individuals purchase and sell homes. The company also provides title and settlement services, originates, and sells mortgages.

Analysts Are Bearish While The Chart Is Bullish

Analysts are bearish on the name and currently have a Reduce rating based on 14 analyst ratings. What's even more problematic for an investor is that the consensus price target is $6.76, predicting about 38% downside in the stock. Of the 14 ratings, 12 analysts have RDFN as Hold and 2 as Sell.

It's not all bad news for investors or prospective participants. There is a disconnect between the analysts' and the market's thoughts. While analysts are bearish and predict close to a 40% downside in the stock, shares of the company are trading near a critical breakout level.

For most of the year, Redfin shares have traded between $8 and $12. Over the last two months, the stock has consolidated near the range's resistance, indicating that buyers have stepped up and a breakout might be imminent. Medium to higher time-frame key moving averages, like the 200d SMA and 50d SMA, have begun to flatten and curl higher, signaling a change in trend and direction.

Participants will be eyeing the critical level of $12 for a breakout, which might confirm a higher move. The next level of resistance and potential target in the short term is $14.

The Short Interest

As of May 31, 2023, the short interest in RDFN was 17.22% or 19m shares. The short interest equates to a dollar volume sold short of $186 million.
As a recovery in share price has taken place so far this year, and shares are currently trading near a critical breakout level, the above-average short interest might become a catalyst for higher prices.

If the stock can break above the critical level and hold firmly, short-sellers may begin to cover their position and create a demand-supply imbalance leading to a further rise in the company's share price.

Should You Invest In Redfin?

Shares of RDFN have experienced a significant recovery so far this year, with the stock up 160% YTD. While analysts are bearish on the stock, the market sentiment is positive, with shares consolidating near a breakout level.

If a breakout occurs, a high short interest could further fuel the stock's upward momentum. Investors should weigh the conflicting views and conduct additional fundamental research before pulling the trigger.

Investors or traders, focused heavily on short-term price action, favor the opportunity over medium to longer-term participants as the breakout over $12 could experience strong momentum to the upside.