RE/MAX Holdings Inc (NYSE:RMAX), a USD$1.47B small-cap, operates in the real estate industry which displays attractive investment characteristics relative to other sectors, especially over time. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, and also determine whether RE/MAX Holdings is a laggard or leader relative to its real estate sector peers. View our latest analysis for RE/MAX Holdings

What’s the catalyst for RE/MAX Holdings’s sector growth?

Over the past couple of years, as yields for high quality real estate investments have become under pressure, investors have swung towards more niche and diversified buildings such as medical offices, student housing and data storage facilities. In the past year, the industry delivered growth in the teens, beating the US market growth of 10.81%. RE/MAX Holdings lags the pack with its negative growth rate of -2.34% over the past year, which indicates the company will be growing at a slower pace than its real estate peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 21.54% in the upcoming year.

Is RE/MAX Holdings and the sector relatively cheap?

The real estate sector’s PE is currently hovering around 13x, below the broader US stock market PE of 20x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 9.07% on equities compared to the market’s 10.46%. On the stock-level, RE/MAX Holdings is trading at a higher PE ratio of 37x, making it more expensive than the average real estate stock. In terms of returns, RE/MAX Holdings generated 80.17% in the past year, which is 71.10% over the real estate sector.

What this means for you:

Are you a shareholder? RE/MAX Holdings’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in RE/MAX Holdings’s high price, suggested by its higher PE ratio relative to its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto RE/MAX Holdings as part of your portfolio. However, if you’re relatively concentrated in real estate, the RE/MAX Holdings’s high PE may signal the right time to sell.