Investors in the online real estate portal Opendoor Technologies (NASDAQ:OPEN) stock currently have little to celebrate. OPEN stock is trading close to all-time lows.
What a difference a year can make on Wall Street. The iBuying leader made its public debut in late 2020 via a reverse merger with Chamath Palihapitiya’s special purpose acquisition company (SPAC) Social Capital Hedosophia Holdings II. Then, on Feb. 11, 2021, almost a year ago, shares hit a record high of $39.24.
Yet, since then, the stock has plunged to $9.69, down around 33% year-to-date (YTD). In late January, it hit a 52-week low of $8.14, a level below the initial SPAC-listing price. In other words, OPEN stock has been underperforming the broader market along with other speculative, high-growth stocks.
Meanwhile, its rivals Offerpad Solutions (NYSE:OPAD) and Redfin (NASDAQ:RDFN) have dropped over 42% and 25% respectively YTD. By comparison, major benchmarks, the S&P 500 and Nasdaq 100 have declined around 5.3%, and 10.8% respectively so far in 2022.
Boosted by historically-low interest rates, the growth in the housing market has been astronomical in 2021 with existing-home sales exceeding 6.1 million, the highest level in 15 years. Nonetheless, this year, we might see a different scenario as we get ready for rising interest and mortgage rates.
The market for digital real estate transactions still offers long-term growth potential. Yet, the iBuying sector, which implies “Instant Buyer,” is likely to face headwinds in 2022. Put another way, given the uncertainties in the current macro environment, it may not be easy to flip homes institutionally,
Nonetheless, buy-and-hold investors who can tolerate some choppiness could consider investing in OPEN stock now. Here’s why.
Third-Quarter Results
Launched in 2014, the San Francisco-headquartered Opendoor Technologies buys and sells residential real estate stateside using digital technology and algorithms. Management reported third-quarter (Q3) earnings on Nov. 10. Investors were pleased to see the number of homes sold increased more than 4x to 5,988 vs. 1,232 homes in the prior-year quarter.
Revenues of $2.3 billion implied a surge of 569.3% year-over-year (YOY) and 91% sequentially over the past quarter. Despite the record revenue level, adjusted net loss came in at $17.3 million, or at a net loss of 9 cents per diluted share. In the year-ago quarter, net loss per share had been 91 cents.
Cash and equivalents ended the quarter at $1.3 billion. Meanwhile, Opendoor’s inventory balance grew to 17,164 homes. Liabilities at the end of Q3 stood at $4.2 billion.
Finally, management launched five new markets in Q3, bringing a total footprint of 44 markets. Canada is expected to be the next focus.
On the results, Chief Executive Officer Eric Wu said, “In our view, the end state for the real estate marketplace will inevitably be a simple, certain, and fast transaction powered by technology,” and added, “Our third quarter results are the byproduct of this focus on the consumer experience.”
OPEN’s Q4 and full-year 2021 financial metrics will be released on Feb. 24 after the close of the market. Therefore, shares are likely to stay volatile in the short-run.
Adding OPEN Stock to Portfolios
Among 9 analysts polled, Opendoor Technologies has a “buy” rating. Also, the consensus of 7 analysts for a 12-month median price target stands at $24, implying an upside potential of over 140% from current levels. Meanwhile, the 12-month price estimates range between $8 and $34.
OPEN shares trade at 1.36x trailing sales and at a price-to-book (P/B) ratio of 2.5x. These metrics imply that the massive pullback has finally pushed OPEN stock to a fair, but not necessarily cheap, valuation level.
A hawkish U.S. Federal Reserve and the ongoing bearish market sentiment could easily extend the volatility in the price of the real estate technology platform. However, those investors with a two- to three-year horizon could add the iBuying leader to their portfolios.
Interested readers could also consider buying an exchange-traded fund (ETF) that holds OPEN stock, as well. Examples include the ETFMG Real Estate Tech ETF (NYSEARCA:HHH), the Invesco ESG NASDAQ Next Gen 100 ETF (NASDAQ:QQJG), the iShares U.S. Real Estate ETF (NYSEARCA:IYR), and the Vanguard Real Estate Index Fund ETF Shares (NYSEARCA:VNQ).
The Bottom Line on OPEN Stock
The U.S. Federal Reserve will likely raise interest rates several times in 2022. “Interest rates are to the value of assets what gravity is to matter,” Warren Buffett cited in 2013. In other words, investors are not feeling too optimistic about many sectors in the economy. And if rates increase rapidly, we can expect real estate prices to cool down in most parts of the nation.
In early November, Opendoor’s biggest competitor Zillow Group (NASDAQ:Z,ZG) announced it would shut down the Zillow Offers segment and exit the iBuyer market. Now, Wall Street debates whether OPEN stock could eventually benefit from this development. Yet, analysts concur that the company must be able to rapidly sell the houses it buys. Otherwise, inventory and cash flow issues might surface.
Given the potential headwinds in the real estate market, Opendoor might need a few years to become a profitable company. However, the recent pullback has improved the margin of safety for long-term buyers. Therefore, February could be a good time to hit the ‘buy’ button on OPEN stock if you can patiently wait for several years.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
