Equity prices on Wall Street have never been higher, yet Zillow (NASDAQ:ZG) stock is 73% off its highs. A year ago, ZG stock exploded in a 140% rally to start the year. Then its momentum died suddenly in the middle of February. The bears have controlled the price action since then in a harsh descending channel.

Today we look into the potential that Zillow stock forming a tradable bottom.


Their industry is still as healthy as ever as home prices continue to rise. The real estate pros complain about not having enough supply. This suggests that demand is still incredibly strong. Therefore the easy conclusion is that ZG expectations went overboard earlier this year.

There were also wrinkles that management caused, which brought about more headaches for the stock.

Three years ago they announced a new venture into actually buying properties. This year they abruptly announced exiting the strategy and disclosed sizable losses from the experiment. Frankly and in hindsight, the authorities should not have let them even start.

They have become a major provider of industry data that drive deals. This afforded them the opportunity to create advantages in their own deals. From that perspective, I worry a little bit about what the real driver behind their exit was. There is a small chance that we could learn of regulatory pressures behind the scenes.

Investors should also be cautious because real estate valuations are at all-time highs and ZG stock is struggling. If the sector weakens then Zillow stock will have new reasons to fall.

ZG Stock Still Has Healthy Metrics

The fundamental metrics are still healthy. The company is showing strong revenue growth, which helps keep valuation reasonable. The trailing 12 months revenue rate is $5 billion, which is five times that of 2017. Moreover, the price-to-sales is just 2.7, so growing fast makes it a better bargain.

Assuming the strategic moves that management is making now are correct, this is a an opportunity, not an exit point. The time to panic out of the stock has passed. The chart technicals also second that notion.

Current levels have been in contention since 2014. Back then, the stock made a high into $52 per share then lost 60% of it. It took it three years to try again and fail. Then finally the bulls in 2018 broke out, but that effort also failed. As a result, the stock once again lost 60% of its value.

Last year after the pandemic crash, ZG stock finally broke out into the stratosphere. The rally from the March bottom was more than 1,000%. Clearly investors in Zillow have no concept of moderation. Here we are back to almost exactly the same 2014 contention point. Once a stock falls into such pivotal areas often it finds footing.

Support Is Near

Given the speed of the descent, this is more of a cushion than a hard line in the sand. Therefore investors can nibble but not into a full position. Those who know options can use them to create a buffer. Selling puts to buy shares is a bullish position that is a net credit event. It requires no out of pocket expense and leaves room for error.

In the next few months, onus is on management to refocus the conversation. Investors will need to see clear direction for the future. Any new wrinkles in their strategic story will cause more downside.

Wall Street hates question marks, and they will throw fits when new ones emerge.

This article originally ran on investorplace.com.