Ellie Mae Slides as Existing-Home Sales Dip: San Francisco Mover

Ellie Mae Inc. (ELLI), the provider of mortgage-origination software and services, fell to its lowest since August on news that U.S. existing-home sales declined last month and investors took advantage of recent record highs.

Shares of the Pleasanton, California-based company fell 5.6 percent to $23.51 at the New York close, after earlier dropping as low as $21.34. The stock closed at $28.92 on Oct. 3, the highest price since its initial public offering in April 2011.

“We’ve been seeing a pullback among the software names as they had gone up so fast, really straight up in the past three months,” Brian Schwartz, an analyst at Oppenheimer & Co. in San Francisco, said in a telephone interview. “It’s follow-through on the volatility that occurred during the past week, and Ellie Mae reached a 50-day moving average, then pulled back.”

Sales of previously owned U.S. homes declined in September from the highest level in two years, restrained by a lack of supply that may keep pushing prices up, an industry group reported Oct. 19.

Existing-home sales, including completed transactions for single-family houses, townhouses and condominiums, fell 1.7 percent to a seasonally adjusted annual rate of 4.75 million in September from 4.83 million in August, the National Association of Realtors said.

Ellie Mae said in a statement that it had been contacted by the New York Stock Exchange about activity in its shares and had “informed the NYSE that its policy is not to comment on unusual market activity.”

‘Sustainable Recovery’

“There may be some misunderstanding as folks try and grasp what the news is, but there is a sustainable recovery in housing,” Schwartz said. He has an outperform rating on the stock, with a target price of $32 a share.

“The growth trajectory is likely to be higher for these software companies than people think. People should look at Ellie Mae as a dominant industry leader with huge market gains still ahead,” Schwartz said. “There are numerous growth opportunities and emerging opportunities, including among the mega banks.”

Ellie Mae, known as a software-as-service company, provides “data quality assurance and complex software in what was a pen- and-paper market,” Schwartz said. Its software offers ways of automating the mortgage process and improving risk management.

“All the mortgage origination data seems to indicate that there is a recovery in the housing market and the demand for their services is increasing, not decreasing,” Schwartz said. Ellie Mae is “the market leader in what they do. They only sell in the U.S. so have no exposure to Europe. The price drop today is a wonderful buying opportunity.”

To contact the reporter on this story: Samantha Zee in San Francisco at szee@bloomberg.net

To contact the editor responsible for this story: Jeffrey Taylor at jtaylor48@bloomberg.net

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