Less than favourable conditions in the housing market have already taken their toll on the likes of small-cap McGrath Ltd (ASX: MEA) and with weakened conditions likely to hang around for a year or so yet, there are several other shares that could fall on tough times in the near future as a result.
Nick Scali Limited (ASX: NCK)
Less home purchasing means fewer homes to fill with furniture – and that’s bad news for the likes of furniture retailer Nick Scali Limited.
If you’re a fan of the buy on a low, sell on a high adage, now would not look like the time to dump your Nick Scali stocks – with its share price down 0.5% to $5.31 at the time of writing – dropping back from $6.60 at this time last year.
But with the lagging sales in the housing market across the eastern states tipped to continue, it’s likely going to be 1-2 years before Nick Scali shares start to show much value for shareholders.
Nick Scali reported reasonable results back in August for FY18, with revenue up 7.7% and NPAT up 10.1%, but its strategy to roll out a succession of new stores could be a real concern if people aren’t buying up homes to fill with its furniture.
It would be prudent for Nick Scali to put such plans on hold, but it will remain to be seen what steps the household-name retailer takes to mitigate the housing market downturn.
It would seem an unnecessary risk to expand right now given the overall market, so shareholders will need to decide if they want to bail out or hang on to weather the storm.
Domain Holdings Australia Ltd (ASX: DHG)
It’s been a tough few months for real estate selling platform Domain Holdings Australia Ltd – with its share price sitting at a 52-week low at the time of writing at $2.50.
Aside from some decent movement in mining towns, Australia’s plunging property market is not good news for the platforms where properties are advertised, such as Domain.
And with a Domain article recently stating 8.9% of mortgaged Australians have negative equity, the situation looks dire.
Domain’s share price took a sharp dive in early October after the release of a trading update reporting total revenue was down 1% as pro forma total costs had risen 7%.
The silver lining was a rise in digital revenue of 6%, but with an outlook suggesting pro forma underlying costs would increase to mid to high single digits for FY19, you can understand the reluctance of investors to really rally behind the stock for now.
Domain’s digital and print listings have no doubt been impacted by lower new listing numbers and lower auction volumes and Sydney market listings were down 8% for the September quarter with auction volumes dropping 22%.
Domain shares are 32% below where they were at this time last year, but the upcoming holiday season is likely to give very little reprieve.
REA Group Limited (ASX: REA)
Although its share price is not looking too flash right now, multinational digital advertising business, REA Group Limited could have better chances of weathering the housing market downturn than the others mentioned in this article, so it seems.
REA shares are at $71.48 at the time of writing, which is close to its price point of around $72 at this time last year, but a far cry from 52-week highs of$93.35 reached in late August.
Nevertheless, REA has a pretty solid international exposure buoying it and this is nothing to be sneezed at when the local market is struggling.
REA’s global strategy leverages off the experience it garnered at home and with a global footprint spanning three continents, REA is asserting itself as an industry leader in the sector with fast-growing audiences in Singapore, Malaysia, and Indonesia.
While I think REA Group will suffer somewhat along with other real estate related stocks for the time being, its strategic investments look strong and should ultimately hold it in good stead.
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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.