Reviewing a Busted Spin-Off Trading for 2x FCF
Newly minted Douglas Elliman $DOUG stock was distributed to shareholders of Vector Group $VGR in December 2021. It was a textbook setup for a spin-off, separating two businesses with little in common: Douglas Elliman is a luxury real estate brokerage, while Vector Group’s core offering is discount cigarettes.

DOUG appears cheap at first glance, trading for two turns of 2021 free cash flow (defined as operating cash flow less capital expenditures). Competitors trade for 6x - 9x. Its stock has suffered from relentless selling since the spin-off, down 43% year to date.

DOUG has traded down in lockstep with other residential real estate brokerages, as surging mortgage rates and a looming recession has stoked fears of a housing bubble. But in DOUG’s core markets (New York and South Florida), the bull market in real estate has continued into 2022.

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