We came across a bullish thesis on Comstock Holding Companies, Inc. (CHCI) on Sea Capital’s Substack by Sea Capital. In this article, we will summarize the bulls’ thesis on CHCI. Comstock Holding Companies, Inc. share was trading at $11.39 as of Oct 11^th. CHCI’s trailing P/E were 13.72 according to Yahoo Finance.

An empty commercial property resplendent with new signage and fresh landscaping.

Comstock Holdings, Inc. (CHCI) is a real estate asset manager focusing on mixed-use and transit-oriented properties in the Washington, D.C. region. Since transitioning in early 2018 to a recurring fee-based revenue model, CHCI has significantly reduced its operational risks and established a debt-free balance sheet.

CHCI generates revenue primarily through asset management services, anchored by a long-term Asset Management Agreement (AMA 2022) with Comstock Partners LP, a subsidiary owned by CHCI's CEO and Dwight Schar, founder of NVR. This agreement ensures stable, recurring fees, which currently represent around 80% of total revenue. As of now, Comstock Partners LP manages approximately $2.2 billion in assets, with a full buildout expected to increase assets under management (AUM) to over $5.5 billion by 2026. With a fixed cost structure driven by personnel expenses, CHCI is well-positioned for future revenue growth as AUM expands.

CHCI presents an interesting opportunity due to its robust growth trajectory and favorable valuation. From 2020 to 2024, the company achieved a remarkable 26% revenue growth and 45% Adjusted EBITDA growth on a compound annual growth rate (CAGR) basis. With a market capitalization of approximately $70 million and net cash of about $20 million, CHCI’s LTM Adjusted EBITDA trades at around 4x, compared to a peer average of 15x. This discrepancy suggests substantial upside potential, with an estimated internal rate of return (IRR) of 45% over the next five years.

Key catalysts include the full buildout of its portfolio, which will accelerate Adjusted EBITDA growth and cash flow, facilitating a re-rating of multiples and alignment with peer valuations. Additionally, CHCI has the potential to return excess cash to shareholders through dividends or buybacks, thanks to its asset-light business model and absence of debt. The company's strong recurring revenue, coupled with strategic properties located near Dulles International Airport, enhances its growth outlook. Overall, the risk-reward profile is highly asymmetric in nature.

Comstock Holding Companies, Inc. is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 2 hedge fund portfolios held CHCI at the end of the second quarter which was 1 in the previous quarter. While we acknowledge the risk and potential of CHCI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CHCI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.