On Monday, Zillow Group Inc. (NASDAQ:ZG) shares declined by 9% after the company said it won’t be buying more houses after reaching capacity for the year. Zillow is pausing its property-flipping services amid a growing backlog of unrenovated homes.
The company is facing shortages of workers used to fix up the property amid rising demand for Zillow Offers. As a result, it has paused new purchases until it can find a solution for the backlog.
A Zillow spokesperson wrote in an email:
We are beyond operational capacity in our Zillow Offers business and are not taking on additional contracts to purchase homes at this time.
Investors fear the company could lose a significant share of the year-end business to its close peer, Opendoor Technologies Inc. (BMV:OPEN1).
Is it too late to sell ZG shares?
From an investment perspective, Zillow shares trade at steep trailing 12-month and forward P/E ratios of 158.22 and 78.91, respectively. As a result, value investors may opt for alternatives in the market.
However, with analysts expecting earnings to grow by more than 51% this year before rising at an average annual rate of 73.50% over the next five years, its growth prospects look exciting.
Therefore, investors willing to overlook short-term turbulence could find it as a compelling option for the portfolios.
Source – TradingView
Technically, Zillow shares seem to be trading within a descending channel formation in the intraday chart. In addition, the stock pulled back sharply on Monday, pushing the stock closer to oversold conditions.
Therefore, given ZG’s exciting growth prospects, long-term investors could choose to capitalise on the pullback by targeting profits at about $96.22, or higher at $111.77.
On the other hand, $73.32 and $55.88 are crucial support zones.
It could be time to buy
In summary, although Zillow shares trade at steep valuation multiples, its long-term growth prospects outweigh short-term risks.
Therefore, with shares pulling back sharply on Monday, it could be a perfect opportunity to invest in ZG stock.
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