How I Get BAGGED on Realogy $RLGY, And How I'll Never Do That Again

Last week we discussed on the Premarket YouTube show how Amazon was getting into real estate through a company called Realogy $RLGY.  Amazon had launched a service called Amazon TurnKey, and if you got a Realogy realtor through Amazon, then you could get $5k of free stuff from Amazon once you bought your house.

I was bullish.

And I was so dead wrong.

Here's the daily chart of Realogy before and after Amazon TurnKey was announced.  As you can see, after 6 days we gave back the entire gap AND THEN went to 52 weeks lows.  Nasty.

Daily chart of $RLGY before and after Amazon partnership


So why was I bullish?  I had never before seen a deal quite like this before and I thought this would bring in other investors.  I was dead wrong.  In this article, I want to go over why I was wrong, and why next time I will be short on this type of news.

Red Flag 1: Fundamentals


First, fundamentally, Realogy $RLGY is a company that's in a lot of trouble.  It's in a dying industry of real estate brokerages who get paid by finding leads and splitting commissions with the agents who work at their brands like Century 21, Coldwell Banker, Sotheby's International Reality.

Brands at Realogy


This business model is being turned on its head, as real estate agents are getting most of their leads through Zillow $Z, which is causing companies like Realogy to hemorrhage money quarter after quarter.  The company currently has a market cap of $500mm but it has $4.5bln in debt.


Red Flag 2: The Analysts


So after a deal like this, you can expect the sell-side analysts to come out and upgrade the stock, which usually causes it to pop on the first day of trading after the news.

The analysts, however, we not impressed at all with this Amazon Partnership.  Seeking Alpha published an article that day titled Realogy's Amazon tie-up doesn't win any bulls yet, and quotes 4 analysts who all kept their neutral price targets on the company with an $8 - $11 price target.  No analysts, not even the skeezy ones, thought this deal could turn the company around

Seeking Alpha article quoting 4 analysts who were not impressed



Red Flag 3: Amazon's Other Partnerships


This is not the first time Amazon has partnered with a beleaguered company, so to see how the stock should respond, it would make sense to look at how other stocks performed after their respective partnership announcements.

One example is Rite-Aid $RAD, who announced on June 27th that Amazon was launching a new service called Counter, which would allow you to pick up deliveries in over 2,000 Rite-Aid locations.  The stock initially popped 20% and then faded over the coming week back new 52-week lows.  Ouch.

RAD daily chart after Amazon partnership


Another example is Kohl's $KSS, who announced on April 23rd that it would accept Amazon returns in all stores.  This also initially popped the stock up, but again we faded in a few days and crashed super hard after earnings.  Ouch again.

KSS daily chart after Amazon partnership



Summary and Moral of the Story


So I was bullish, and stubborn, and it cost me.  If you were short this name, congratulations, you made a boat-load.  But next time, I'll be ready on the short side when I see this setup again.

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Comments

Nana Yaw posted -
Duly noted, great lesson from a loss case study
TradingForFreedom posted -
Very interesting article. Thanks for sharing and sorry for your loss. I was on the other side. When I saw the price fading after the opening on July 23, I shorted it. I bought back too early but still made 16% over 2 days.

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