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Sleep Better by Controlling This Fear

Analysis can help investors manage risk better, Real Money Columnist Paul Price argues.
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Volatility can be an enemy of sleep, or a nursemaid to profits.

It all depends on whether and how you analyze stocks with high-risk and high potential rewards.

Real Money Columnist Paul Price recently looked at the issue with eXp World Holdings  (EXPI) - Get Free Report, a holding company for a series of subsidiaries that mostly focus on the real estate. 

Price started by looking at fundamentals.

“Since the end of 2018 EXPI excelled across all major business metrics,” Price wrote recently on Real Money. “Continuous shareholders over the most recent four years are sitting on [gains] greater than 271%. There was plenty of volatility along the way, though.”

As Price notes, “2021 was by far the best year in the firm's history. Revenues and EPS both established new all-time records. Quarterly dividends, at 4 cents per share, were initiated. The company is net debt-free.”

So, according to Price, the company’s numbers look terrific! But what makes this a “high-risk” option with record breaking revenues and earnings per share?

In a word, volatility.

“EXPI shares have been subject to immense swings depending on the market's appetite for these kind of companies as well as its overall mood,” Price wrote.

“Despite fine results last year, EXPI fell from an (undeserved) all-time peak of $90 and an Oct. 2021 high of $55.43 to a new 52-week low of $20.05 intraday on April 1, 2022.”

In other words, this is not a stock for the faint of heart.

"By definition, a lot of risk has been removed by that major price-to-earnings compression," Price noted, adding that "' Dream stocks' like EXPI rarely sell for low valuations due to the possibilities for outsized gains."

As a result "owning EXPI outright at $20.50 or so offers very decent upside for those willing to own an ultra-volatile stock which is debt-free and profitable, but not cheaply valued," Price wrote. 

Other possibilities involve options plays, which conserve upfront capital while taking advantage of the big swings in the stock. Price offer more details about those in his column

Get more trading strategies and investing insights from the contributors on Real Money.