Comstock Holding Companies, Inc. (CHCI): A Bull Case Theory

We came across a bullish thesis on Comstock Holding Companies, Inc. (CHCI) on Substack by Thomas Niel. In this article, we will summarize the bulls’ thesis on CHCI. Comstock Holding Companies, Inc. (CHCI)’s share was trading at $10.24 as of March 27^th. CHCI’s trailing P/E was 7.26 according to Yahoo Finance.

Aerial view of a city skyline with modern high-rises showing the success of the real estate services company.

Comstock Holding Companies (CHCI) has undergone a dramatic transformation since its inception in 1985 by Christopher Clemente. Initially a homebuilder, the company expanded beyond the DC metro area before the Great Financial Crisis (GFC) devastated its stock, plummeting from nearly $210 in 2005 to under $2 by 2009. CHCI survived by scaling back operations and refocusing on diversified real estate development, eventually rebranding as Comstock Holding Companies in 2012. However, despite weathering the downturn, the company struggled to regain its former prominence, with revenue failing to return to its 2006 peak of $266 million. While investors who bought at the GFC lows saw a strong rebound toward $20 per share by 2013, the stock languished for most of the 2010s, erasing its gains by 2016. This period of stagnation left CHCI as a net operating loss (NOL) shell with a sizeable $122.8 million in tax assets.

In 2018, Clemente capitalized on this situation by pivoting CHCI away from homebuilding. The company merged its development and asset management operations with Comstock Partners, which Clemente co-owns with billionaire Dwight Schar, the founder of homebuilder NVR. This restructuring positioned CHCI as the asset and property manager for Comstock Partners’ commercial real estate holdings, leading to improved profitability. CHCI posted a net loss of nearly $5 million in 2017 but turned profitable by 2018. By 2021, reported net income hit $16 million due to favorable tax asset adjustments, with steady earnings of $6-8 million annually in the years since. Despite this transformation, CHCI’s stock remained underappreciated, possibly due to its continued classification as a homebuilder, even as it fully transitioned into real estate services.

While CHCI’s stock has rebounded over the past year, rising more than 70%, it still trades at just 13.6x trailing earnings. At current levels, some argue it remains fairly valued due to its small size and low liquidity. However, CHCI has significant growth potential, with Comstock Partners nearing completion on 5.6 million square feet of commercial space along the Dulles Toll Road corridor, a prime location benefiting from recent Metro expansions. This development will more than double CHCI’s managed property portfolio, potentially pushing annual earnings into the $12 million range. If economies of scale materialize, profitability could rise even further. A valuation re-rating in line with other property management firms—between 15x and 20x earnings—could propel CHCI to $18-$24 per share, representing 112% to 182% upside.