Will Opendoor Stock Bounce Back?

Opendoor Technologies (NASDAQ:OPEN) is a novel home buying and selling platform that operates on an instant buying basis, purchasing homes itself and then reselling them after making necessary repairs or improvements.

This model was also followed by real estate platforms, such as Zillow and Redfin, though both of these companies exited due to operational challenges and balance sheet risks by taking on so much debt.

Though it has outlasted its two major competitors, Opendoor has generated massive losses for long-term shareholders. At its height, OPEN traded at over $35 per share. Today, the stock has fallen to below $2 per share.

Is Opendoor an undervalued buy that will generate large returns as it rebounds, or will the stock continue to struggle and saddle investors with further losses?

Why Did Opendoor Stock Fall?

Opendoor was initially taken public by an SPAC in 2020. At first, the company seemed to be on a strong growth trajectory. It sprinted out of the gates with $2.58 billion in 2020 but the company’s trailing 12-month revenues skyrocketed to $15.57 billion by the end of 2022.

Since then, however, the company has seen its revenues fall dramatically to a 12-month total of $4.54 billion as of the end of Q2.

Many of Opendoor’s problems have been macroeconomic in nature. The period during which the company’s revenues fell off a cliff was marked by both a huge increase in interest rates and a slight cooling of the housing market.

Inflation also played a role, making the process of improving properties more expensive in terms of both labor and materials.

Combined, these conditions significantly raised the costs of Opendoor’s business and created a less favorable market for it to sell into.

Opendoor Starting to Make Headway

Opendoor appears to be making some slight headway on the financial front. In Q2, the company’s revenues rose by 28% from the previous quarter, though they were still down 24% compared to the year-ago period.

The company was able to sell 4,078 homes, once again an improvement from Q1 but well below the numbers from Q2 of 2023.

A crucial point, though, is the fact that Opendoor bought over 7,000 homes during Q2, representing a 78% increase from the year-ago quarter. The new purchases brought the company’s total inventory to $2.2 billion, 94% higher than the total a year ago.

These ongoing purchases are key to driving future revenue growth and improving sequential quarterly sales figures.

Another positive is the stock’s valuation after its long fall. Trading at just 0.3x sales, Opendoor is beginning to look cheap, at least on that metric, for a growth stock. This creates the potential for a significant upswing if Opendoor can continue growing at a fairly fast pace.

Will Headwinds for Opendoor Ease?

A longer and slower revenue recovery may prove to be too much for investors to tolerate. After the massive decline in the top line as interest rates rose, Opendoor has struggled to grow in the higher rate environment.

The Federal Reserve’s baseline interest rate is expected to remain above 3% through 2026. At the same time, inflation is still running at 2.9%, a good bit above the Fed’s 2% target.

The housing market, likewise, may not be on track to improve significantly in the near future. The summer home-buying season in 2024 was notably muted, likely as buyers sat on the sidelines and waited for lower interest rates to appear. Supply has increased somewhat, slowing the rate of price growth.

These factors may slow Opendoor’s resurgent growth. For Q3, management is expecting revenues of $1.2 to $1.3 billion, already lower than the $1.5 billion it was able to generate in Q2.

Though Opendoor’s success will be defined by its ability to acquire and sell properties profitably over long periods of time, underperforming this near-term revenue target could set the already volatile stock up for further losses.

It’s also worth noting that Opendoor has only ever managed to report two quarters of very thin GAAP net profitability. Q1 of 2022 and Q2 of 2023 saw the company turn positive profits, only for net incomes to turn negative again in subsequent quarters.

Given this track record and the company’s ongoing struggles, it’s no mean feat to make the claim that it can begin delivering consistent positive earnings anytime soon.

Will Opendoor Stock Bounce Back?

Analysts see Opendoor stock bouncing back to $2.04 per share, the consensus fair value price target, approximately 6% higher than current price levels.

Opendoor’s business model of simplifying the home buying and selling process is a novel and potentially lucrative one, giving the company a chance for long-term growth.

The beginnings of a rebound in revenue and significant growth in acquisitions also bode well. Paired with a very low valuation relative to sales, it’s unsurprising that Opendoor is beginning to attract investor attention again.

The problem, however, is that Opendoor is still operating in a challenging macro environment. Though inflation is lower and interest rates will likely be cut later this month, Opendoor will have to continue dealing with higher costs than it became used to during the pre-2020 years of near-zero rates.

It’s also worth mentioning that Opendoor may be lulling investors into a trap. Even though the stock seems quite cheap, the market may be accurately pricing in the risks and uncertainties associated with it.

Although Opendoor may well rebound, the threats seem to outweigh the company’s positive attributes at the moment. Investors may want to watch Opendoor for signs of improvement, as the stock’s extremely low price might give it a decently long runway if and when it does begin to move upward again.

At the moment, though, there seem to be too many open questions about the company’s ability to return to steady revenue growth and eventually deliver profits.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.