This heavily shorted ASX 200 real estate stock is diving 13%: Should you buy the dip?

This stock is being sold off on Tuesday. But why?

| More on:
a young couple sit on their sofa at home looking distraught and downcast while sitting at an open laptop computer. The man has his head in his hand while tthe woman holds her hand to her face.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Lifestyle Communities Ltd (ASX: LIC) share price is having a day to forget on Tuesday.

In afternoon trade, the ASX 200 real estate stock is down 13% to $12.32.

Why is this ASX 200 real estate stock crashing?

Investors have been hitting the sell button today after the retirement communities company released a trading update.

As I mentioned here earlier this week, this ASX 200 real estate stock was among the most shorted shares on the ASX with a short interest of 7.4%. This high level of short interest was due to the company's struggles with subdued settlement rates.

In light of this, it will come as little surprise to learn that Lifestyle Communities has just downgraded its settlements guidance for FY 2024.

Management notes that when it released its half-year results in February, it expected approximately 350 new homes to settle in FY 2024. This was based on pre-sales contracts held at that time and experience from prior years of conversion rates.

Unfortunately, beachside and northwest Melbourne locations have been slower to settle than predicted.

As a result, new home settlements for FY 2024 are now estimated to be in the range of 290 to 310.

Longer term outlook

The ASX 200 real estate stock expects a better performance in FY 2025. Based on projects it currently has in the market, its settlement expectations for FY 2025 are 425 to 475.

Assuming marketing conditions and settlement timeframes hit its targets, its settlement range for FY 2023 to FY 2025 will be 1,080 to 1,130. In light of this, management remains comfortable with the FY 2024 to FY 2026 guidance range of 1,400 to 1,700 new home settlements.

The ASX 200 real estate stock's managing director, James Kelly, said :

Our construction program is on track, and we have no issue delivering homes for settlement when needed. We were pleased to achieve 110 new home sales in the first quarter of calendar year 2024 which indicates that demand for our product remains. It's a matter of external timing for customers to sell their homes which remains difficult to forecast.

Should you buy the dip?

Analysts at Goldman Sachs have been very bullish on the company for some time. So, this news has been a big disappointment. Particularly given the commentary it provided to the market when raising funds a couple of months ago. The broker commented:

LIC's revised settlement guidance comes as a disappointment following the outlook provided with the capital raising two months prior. We acknowledge that the external sales environment remains relatively soft, and that LIC is executing on its development pipeline, though the second downgrade this calendar year suggests that forward visibility on sale-to-settlement conversion remains challenging. We expect consensus estimates to be revised downwards based on the lower new home and resale settlements, and note likely investor concerns around the substantial settlement ramp-up implied in FY26 to reach the low-end of LIC's reiterated medium term guidance.

As things stand, Goldman Sachs has a buy rating and a $21.32 price target on its shares. However, this could change once the broker has updated its financial model to reflect today's update.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Real Estate Shares

A man and a woman stand on an external balcony in a dense city environment filled with high rise buildings and commercial properties. The man is pointing up at a high rise building and the woman is looking on.
Real Estate Shares

Up 73% in a year, this surging ASX 200 stock just hit another all-time high

This property share has skyrocketed, with the company recently upgrading its FY24 guidance for a second time.

Read more »

falling infrastructure asx share price represented by disheartened looking builder on work site
Real Estate Shares

Top broker says this beaten-up ASX 200 stock could have further to fall

This stock could see more suffering amid major tax pain.

Read more »

Smiling elderly couple looking at their superannuation account, symbolising retirement.
Earnings Results

Why is this ASX 200 stock avoiding the market selloff and pushing higher?

Not all shares are falling with the market on Thursday.

Read more »

5 mini houses on a pile of coins.
Share Market News

Here's how the ASX 200 market sectors stacked up last week

ASX real estate shares were strongest among the 11 market sectors last week.

Read more »

Mini house on a laptop.
Real Estate Shares

ASX 200 stock soars 10% on big UK news

It’s great news about a major UK bank.

Read more »

Hands grabbing for high rung on a ladder pointing to the sky
Share Market News

Here's how the ASX 200 market sectors stacked up last week

ASX REITS and property shares led the 11 market sectors last week alongside a new record high for the ASX…

Read more »

A business woman flexes her muscles overlooking a city scape below.
Real Estate Shares

Why is this ASX 200 share rising at nearly quadruple the rate of its peers?

This stock has shot the lights out over the past 12 months.

Read more »

Three smiling corporate people examine a model of a new building complex.
Earnings Results

2 ASX 200 real estate shares leaping higher on earnings news

ASX 200 investors are bidding up the two leading real estate stocks following their earnings reports.

Read more »