Is Zillow stock a buy or sell as it pauses home-flipping service to clear backlog?

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.

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.