Speculative Trade, Bad Investment

Dan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The housing market is wacky. We’ll do our best to figure it all out using logic and avoid any biased opinions. We’ll also attempt to figure out whether Trulia (NYSE: TRLA) is a good investment. And while we're at it, let's also take a look at competitors Zillow (NASDAQ: Z) and Move (NASDAQ: MOVE).

A look inside

One great way to find out what’s going on from the inside of a company is to look at Glassdoor.com. However, if you don’t have the time to do so, that information will often be posted in this column, and only the most important points will be noted.

According to Glassdoor.com, Trulia employees have rated their employer a 3.3 of 5, 54% of employees would recommend the company to a friend, and 76% of employees approve of CEO Pete Flint. The most common positives listed included autonomy, superb training, and strong corporate support. On the negative side, the turnover rate is high, mostly due to a highly challenging environment. This can be looked at as a negative or a positive. If the weaker employees are weeded out, then it’s likely to lead to increased production.

Zillow did a bit better with employees rating their employer a 4.2 of 5. 90% of employees would recommend the company to a friend and 98% of employees approve of CEO Spencer Rascoff. The only consistent negative found in these reviews was a high turnover rate, which is normal for the industry.

Move employees have rated their employer a 2.9 of 5, 33% of employees would recommend the company to a friend, and 42% approve of CEO Steven Berkowitz. While there were some positive reviews, the overall tone was negative, indicating a low morale, which then leads to production levels to lower production.

Many employees complained of being overworked, and some of them mentioned sales trumping honesty. Other negatives for Move included a lack of innovation (following instead of leading) and outdated technology. Whether these reviews are accurate or not can be debated, but it’s a certainty that the company culture is subpar compared to peers.

Online performance

All of these companies rely on Internet traffic for survival. Therefore, online traffic trends provide important hints for near-term potential.

According to Alexa.com, Trulia.com ranks No. 118 in the United States for online traffic. Page-views per user have increased 11.30% over the past three months, and traffic has increased significantly year to date.

Zillow.com has seen a tremendous boost in traffic so far this year, and page-views per user have increased 29.30% over the past three months. Zillow.com also ranks higher than Trulia.com at No. 56 in the United States.

Move’s Realtor.com, ranks No. 159 in the United States. Traffic has increased moderately so far this year, and page-views per user have increased 1.70% over the past three months. Move’s Moving.com ranks No. 20,500 in the United States. Traffic hasn’t moved much this year, and page-views per user have declined 8.12% over the past three months.

Industry trends

With mortgage rates steadily increasing, demand is likely to continue to increase in the near term. If potential buyers see rates moving higher, they will want to lock in a decent rate before they move too high.

Realtors agree that 6% is a key number. If the 30-year fixed moves north of 6%, then demand is likely to wane. Trulia also did a study, and the findings were that 56% of people said they would be discouraged from buying if rates hit 6%.

So, demand is likely to remain high for several months, and perhaps even throughout the year, but this trend doesn’t look to be sustainable. We hear a lot of talk about an economic recovery, but without full-time wage growth, it’s difficult to make an argument that the economy is actually recovering. If workers aren’t growing wages and mortgage rates increase, then it will be difficult for demand to remain high.

Dangerous investments

All three of the aforementioned companies are dangerous investments. They might make good trades, but that’s not the focus here. The industry might peak in the second half of this year. And with Trulia trading at 52 times forward earnings, Zillow trading at 133 times forward earnings, and Move trading at 35 times forward earnings, a lot would need to go right for these stocks to continue to appreciate over the next several years. 

Conclusion

If you’re looking to speculate, then you might want to consider Trulia or one of its peers. However, its tough to recommend any of these companies at this time. All three are very expensive, and the industry’s long-term prospects are questionable at best.

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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Zillow. The Motley Fool owns shares of Zillow. Try any of our Foolish newsletter services free for 30 days. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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