Compass Stock Plunges 15% Amid Anywhere Acquisition Concerns
Compass Inc. (NYSE: COMP) stock has plummeted over 15% in the past week, outpacing the S&P 500's 0.6% decline. The drop follows Compass's announcement to acquire Anywhere Real Estate in an all-stock deal valued between $1.5 and $1.6 billion on the stock market.
The acquisition, set to cost Compass shareholders approximately 78% control of the combined entity with a projected enterprise value of nearly $10 billion, has raised concerns among investors. They worry about the significant premium paid (84% over Anywhere's pre-deal share price) and the assumption of $2.6 billion in debt.
Compass contends the deal will strengthen its position as the leading U.S. residential real estate brokerage and broaden its services. However, the company's financial stability could be at risk, given its low debt-to-equity ratio of 12.3% and cash-to-assets ratio of 11.1%. The impending Anywhere deal could jeopardize this stability.
Compass's stock has shown vulnerability during challenging times, having plummeted nearly 91% during the 2022 inflation shock. Its revenue growth has been inconsistent, with a slight decrease over the past three years but a 21% increase in the past twelve months. Despite this, the company has yet to demonstrate sustained profitability, with a negative operating margin of 0.7% and a net margin of -0.9% in the last year. The stock's valuation appears moderate with a price-to-sales ratio of 0.7, but it is trading at a negative price-to-earnings ratio and has a high price-to-free-cash-flow multiple of 30.2.
The completion of the acquisition will see Compass shareholders control approximately 78% of the combined entity, with a projected enterprise value of nearly $10 billion. However, investors remain concerned about the deal's financial implications and the company's ability to maintain profitability on the stock market.
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