We recently compiled a list of the 10 Worst Augmented Reality (AR) Stocks According to Short Sellers. In this article, we are going to take a look at where eXp World Holdings, Inc. (NASDAQ:EXPI) stands against the other AR reality stocks that short sellers do not recommend.
Augmented Reality (AR) has been an exciting development within the broader tech sector. AR offers a partly immersive experience to users through which they can interact directly with a 3D overlay onto the external reality in real-time. There are several interesting examples of AR usage in today’s tech sector, such as AR projections from phone devices, AR windshields on cars, and, perhaps most commonly, AR glasses. Suffice it to say this is a growing area within tech with immense potential, and there’s a lot of excitement surrounding AR players in the market today.
In our previous articles on AR stocks, we’ve covered some of the key players in this space, including notable tech titans. However, if you’ve kept up with developments in the AR space, you’d know that many investors are still considering this area to be a risky investment overall and are not convinced that the billions of dollars that are going into developing AR tech are justified. Because of this type of sentiment in the market, one of the major businesses in AR/VR today, Reality Labs, is undergoing loss upon loss and is unable to really make it back.
Investors Are Worried About the Future of AR Companies
On April 25, Rob Sanderson, managing director at Loop Capital, joined CNBC’s “The Exchange” to discuss Mark Zuckerberg’s increased spending in AR/VR. He noted that the company had been spending about a quarter’s worth of earnings on Reality Labs to build up the vision of the Metaverse, but there’s not a great return on investment for this spending, and nor are there any ways to justify it. Another interesting factor here is that despite the immense spending on Reality Labs and presumably the Meta Quest 2 headset, most tech experts who have gotten the chance to try out this headset believe that it loses out in competition with another, pricier headset – the Vision Pro. According to Joanna Stern, Wall Street Journal’s senior personal technology columnist, the Vision Pro is just not comparable with the Quest 2. The Vision Pro is winning in this race because it’s lighter, offers more seamless operability, and is just more user-friendly in terms of its features – all this despite the hefty price tag.
With the way things are, it’s unsurprising that investors are beginning to lose faith in Reality Labs and really can’t wrap their heads around the immense spending being done there. This type of concern is actually rampant across the board for many AR stocks in the market today, with several of these companies having the same issue of increased spending, which tends to throw investors in a panic because many of the companies operating in the AR space right now are actually quite small, and still have to prove their worth in the market. Considering this widespread concern, we’ve compiled a list of some of the worst AR stocks according to short sellers, so investors looking to buy into this space know where to put their money and which companies to absolutely avoid, at least for the time being.
Our Methodology
We first compiled a list of 20 AR stocks by sifting through ETFs and online rankings. We then selected the 10 stocks with the highest short interest and ranked them in ascending order of this metric. We have also mentioned the number of hedge funds holding stakes in each stock, as per Insider Monkey’s hedge fund data for the second quarter.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
An aerial view of the largest real estate development in the city, symbolizing the company’s success.
eXp World Holdings, Inc. (NASDAQ:EXPI)
Number of Hedge Fund Holders: 17
Short Interest: 13.02%
eXp World Holdings, Inc. (NASDAQ:EXPI) is a real estate company based in Bellingham, Washington, but it makes significant use of AR and VR technologies to replicate real-world dynamics and social interactions in its operations, primarily through its cloud-based product, Virbela.
In the second quarter, eXp World Holdings, Inc. (NASDAQ:EXPI) saw June’s home existing sales down by over 5% year-over-year. Another warning sign for investors could be that the company’s found, Glenn Sanford, sold $1.1 million worth of eXp World Holdings, Inc. (NASDAQ:EXPI) stock at a price of $12.80 per share in July, which is around when the shares were trading above $14.
Investors may also be avoiding eXp World Holdings, Inc. (NASDAQ:EXPI) because its second-quarter results overall were quite disappointing. It missed analysts’ estimates on both EPS and revenue by $0.06 and $3.28 million, respectively. In fact, eXp World Holdings, Inc.’s (NASDAQ:EXPI) earnings have been on a general decline over the past five years. This is all the more concerning since the company pays out a dividend at a yield of 1.6%. Since company dividends are supposed to come out of profits, investors are concerned that eXp World Holdings, Inc. (NASDAQ:EXPI) may not have the free cash flow to keep up with dividend payments alongside its operational expenses.
A total of 17 hedge funds were long eXp World Holdings, Inc. (NASDAQ:EXPI) in the second quarter, with a total stake value of $53.5 million.
O’keefe Stevens Advisory mentioned eXp World Holdings, Inc. (NASDAQ:EXPI) in its first-quarter 2024 investor letter:
“EXp World Holdings, Inc. (NASDAQ:EXPI) – The market underestimates the impact of recent NAR settlement and regulation changes. EXP’s buyer-tilted business model affects them more than typical real estate brokers. We walk through the unit economics of the changes at a broker and corporate level.”
Overall EXPI ranks 5th on our list of the AR reality stocks that short sellers do not recommend. While we acknowledge the potential of EXPI as an investment, we believe that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than EXPI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.