La Rosa Holdings Presents A Value Proposition Too Attractive To Ignore…Here’s Proof ($LRHC)

La Rosa Holdings Corp (NASDAQ: LRHC) stock presents a value proposition too attractive to ignore. That’s not overzealous speculation, either. It’s an evidence-based assessment founded on LRHC’s mission to become a bigger company, which is happening faster than many may have expected. Last week, the company announced that it acquired a controlling interest in two franchised offices in Florida that combined to deliver roughly $20.6 million in 2022 revenues. But adding to the topline was just one compelling feature; the assets also produce net income. It proves that La Rosa’s rollup strategy to utilize its post-IPO strength to accrue revenue-generating acquisitions to increase shareholder value is more than ambition; it’s a mission in progress. 

In other words, any weakness in LRHC stock is less a sign of brand weakness and more an exposure to opportunity. At $2.24, it’s a compelling one. In fact, since its public debut earlier this month, LRHC has done nothing but add to its case to support a higher share price than its $5.00 debut price, one the underwriters considered fair value. But here’s the deal. That share price would still expose a valuation disconnect, especially after its recent acquisitions. That bullish assessment is also warranted, considering the multiples given to other companies in the sector.

For example, Remax (NYSE: RMAX), eXp World Holdings (NASDAQ: EXPI), and Fathom Holdings (NASDAQ: FTHM) all have something in common- they hold premium P/E and/or revenue multiples. That’s not all. Along with the bullish pricing models, investors have bid the market caps of peer companies higher, as shown by Fathom Holdings, eXp World Holdings, and The Real Brokerage Inc. (NASDAQ; REAX), scoring increases of 42%, 81%, and 34%, respectively, on a comparative quarterly basis. 

La Rosa Deals Support A Higher Valuation

Although LRHC isn’t getting the same respect, it’s likely to earn it sooner than later, with topline growth expected to continue its steepening trajectory. Moreover, from a capital structure perspective, LRHC looks ideally positioned for a breakout move higher. That’s not only an expectation based on its expanding market presence in hot real estate markets in Florida, California, New York, and Puerto Rico but also from the company having only about 11.9 million shares outstanding and more attractive from an investor’s perspective, only about 805k shares in the float. 

There’s more to appreciate. The biggest thing is that LRHC is disrupting a market that has seen little operational change over the past five decades. In fact, they are turning the commissions model on its head, offering their agents 100% commissions on residential properties sold. That’s a stark difference to models where agents earn a percentage of a percentage. As importantly, LRHC is not 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 last year. Here’s the better news. 

By taking a controlling interest in two Florida offices, topline growth is expected to double, with a good part of that falling to the bottom line. And those two deals may be the first of several more this year, resulting in more than topline growth; they should accelerate LRHC’s mission to post EPS faster than many think. Plenty supports that intent. Foremost is that LRHC promotes an earnings model where its agents earn 100% commissions. That difference is more than an advantage; it’s a value driver. 

Here’s why that matters. Unlike traditional real estate offices that earn a percentage of a percentage, LRHC has created a unique business model that provides revenues through franchising, member dues, and a 10% commission from commercial transactions. Residential pays no commissions. Instead, franchised agents pay a one-time upfront fee and monthly dues, currently $75. After that, franchise and affiliate agents earn 100% of commissions, less the costs noted, and a transaction fee of up to $495. Additional revenues to the company are generated through a one-stop-shop approach to real estate transactions, including providing ancillary services like mortgage insurance, title services, and coaching. 

An Increasing Agent And Office Count

That model works by La Rosa being an agent-centric company, drawing new agent interest and helping shift LRHC’s growth rate speed from hyper to warp. That’s an intentional result of utilizing the best technology tools in the market to provide over $7,000 worth of free marketing, consistent training, coaching, and, most importantly, close deals quickly and efficiently. That package led to LRHC completing $2.9 billion in total transaction volume last year, which could be eclipsed this year. If LRHC compensated its agents similarly to traditional brokerages, that might be an overly ambitious target. But since LRHC breaks from the rules by rewarding its agents 100% commission, less the fees noted, it’s a goal in the crosshairs. 

And with several other acquisitions in its pipeline, breaching that $2.9 billion number may happen faster than expected. That could result from LRHC creating an infrastructure that can support five times its current agent count. That foundation isn’t what will attract new talent. LRHC’s agent-centric business model will. It should. It does more than pay 100% commission; it also provides a turnkey solution to real estate brokers and sales agents seeking financial independence. They get those benefits plus support from LRHC. That win-win proposition incentivizes brokers and agents and enables 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. And LRHC’s model provides its agents the lion’s share of it. It’s an innovative model that is actually quite simple to understand. As an example, assume 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. Its new way can be described in a single sentence: La Rosa agents get 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. Considering Team La Rosa generated $2.9 billion in transactions last year, a massive amount of dollars stayed in agents’ pockets. In the current $113 trillion real estate sector, the pay raise can be off the charts. Of course, La Rosa will get a fraction of that business. However, considering LRHC can point agents to the billions in transaction volume last year, they will likely earn more of the opportunity in 2023 and onward. That should happen once the sticker shock of higher interest rates subsides. 

Accepting A Normalized Interest Rate Environment

That’s starting to happen. And rightly so. In fact, while interest rates are at 7% and higher in some cases, that’s not out of the “artificial normal” created by the years of easy Fed money. Yes, there is an effect on buying power and relocation. However, from a historical perspective, current rates align with decades of precedent. In fact, between April 1971 and September 2023, 30-year fixed-rate mortgages averaged 7.74%. That’s led sector analysts to believe that markets could start normalizing early next year, despite the Fed hinting that additional rate hikes may be warranted to tame inflation. 

In other words, the sense of urgency to buy sooner rather than later could return in early 2024. And sellers may oblige. They have seen their home values soar over the past five years. Since many of these homeowners downsize, those arguing that sellers are holding tight because they can’t afford the trade may be losing some credibility. But even in tight markets, the LRHC model is an extremely attractive one to embrace. And the sooner agents get on board, the better. 

There will be a residential and commercial real estate market rebound. It’s inevitable. Thus, positioning ahead of it makes sense professionally and financially. Remember, until that market resumes normalcy, agents earning 100% of commissions is the ultimate offer. It’s a great deal now and will be then. Both periods can bode well for LRHC to grow bigger faster. And through a platform that simplifies the buying and selling process and, importantly, provides support to sellers and enables agents to leverage LRHC’s strength in limited inventory markets where competitive bidding and multiple offers can create considerable emotional stress, LRHC is doing the right things at the right time to capitalize on and maximize its opportunities on both sides of the sale.

A La Rosa Holdings Value Proposition Exposed 

And keep this in mind as well. Post-IPO, LRHC has the capital to expand its business reach, acquire performing assets, and capitalize on opportunities to drive higher revenues supported by a platform to ensure those revenues fall quickly to the bottom line. That’s more than a valuable distinction in challenging markets; it draws attention. The right kind, especially as investors search for companies up to clearing hurdles and creating shareholder value when others can’t. La Rosa Holdings checks those boxes. 

And with two deals made last week and more expected, an expected doubling of revenues may be the precursor to a more significant increase. Couple that with a low-overhead business model, an agent force in the thousands, and a platform designed to enable more transactions from a sales team incentivized by earning the highest commission rate available- 100%, LRHC’s disconnect between assets, potential, and share price could close quickly. Based on guidance and proof of concept, that’s more likely to happen than not. 

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