La Rosa Holdings (LRHC) stock price surged but beware of this risk

La Rosa Holdings (NASDAQ: LRHC) stock price has been one of the most volatile stocks in the past two days. The stock surged from Wednesday’s close of $1.31 to a high of $5.5, a 318% jump. It then ended the day at $2.74 and continued plunging by over 10% in the pre-market session. This trend has brought its total market cap to about $35 million.

La Rosa Holdings stock chart

Why the LRHC stock surged

La Rosa Holdings is a company that provides agent-centric and technology solutions in the real estate company. It is involved primarily in residential and commercial real estate brokerage services. 

It uses a relatively simple model, where it uses technology and agents to sell these properties. Agents get to keep the full commission generated for every sale. These agents pay an annual fee. Other agents can also select to use a revenue share model.

The main reason why the La Rosa Holdings stock price surged was its decision to acquire its Florida franchisee known as La Rosa Realty Winter Garden. This was the company’s seventh acquisition in the past few months.

Winter Garden has annual revenues of $1.4 million and already generates positive cash flow, which is a positive sign. In total, the company’s recent acquisitions have over $26.2 million in annual revenues.

La Rosa hopes that these acquisitions will help it reach its revenue and run rate target of $100 million by the end of the year. It also aims to become profitable by 2025. 

La Rosa Holdings dilution risks

The most recent results showed that La Rosa Holdings revenue rose to $6.8 million in Q3, up from $6.1 million in the same quarter in 2022. Before that, it brought in $7.5 million in the second quarter of the year.

The company has also narrowed its losses. Its quarterly loss came in at $300k down from $0.7k in the same period in 2022.

The main risk for La Rosa investors is that the company will likely need to raise additional capital to fund its acquisitions. That’s because the company is not yet profitable and its balance sheet is not all that strong.La Rosa Holdings raised $5 million in its IPO in October last year. Its most recent financials shows that it had less than $1 million in cash. This means that it could use the recent surge in the stock price to dilute existing investors.

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