Opendoor Technologies (NASDAQ:OPEN) is certainly an intriguing stock to many investors. The company is focused on simplifying home sales by offering instant cash for homes, handling repairs, and re-listing said homes on its platform. The company’s stock price has been volatile since its SPAC merger in 2020, having surged from an initial pre-SPAC price of $10 per share to as high as $35.88 in the February 2021 growth stock surge. Today, the stock trades at $2.27 per share, down more than 75% from its initial listing price.

Interestingly, the company’s decline has been rather consistent since it hit is peak, with its one-year return currently sitting at -38%. With the stock now trading at a level that appears to imply some serious bankruptcy risk, I thought it would be interesting to dive into whether this company is worth considering at current levels, or if it’s a potential value trap to avoid.

So, let’s do just that.

Key Points About This Article:

• Opendoor is a top fintech company focused on revolutionizing the housing market that’s seen a considerable decline from its post-pandemic peak.
• At this considerable discount to even its SPAC IPO price, the question is whether this stock is now a buying opportunity or a value trap at current levels.
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What to Make of Opendoor’s Recent Results

Fowling the company’s recent earnings reports, analysts now project Opendoor’s 2024 revenue to drop 26% to $5.16 billion, with adjusted EBITDA improving from -$627 million to -$183 million. Between 2024 and 2026, Opendoor’s revenue is expected to grow at a 35% CAGR, which is rather impressive. Additionally, the fintech company is expected to see positive EBITDA as soon as 2026.

But as most investors know well, this market is penalizing companies without profitability or a near-term pathway toward achieving profitability. To be fair, 2026 isn’t that far away. However, EBITDA profitability isn’t the same thing as GAAP EPS positive territory, so there’s plenty of risk that’s being baked into this name with respect to whether it can survive to 2026 and beyond.

One of the reasons for this concern is the company’s rather high debt-to-equity ratio of 3, which could become a problem if investors decide it’s not worth it to buy the company’s debt or convert debt to equity moving forward. That said, at 0.6-times this year’s sales, this stock is certainly cheap. In this case, beauty is likely in the eye of the beholder.

If interest rate cuts do result in an easing of financial conditions for homebuyers, and activity picks up, this is a stock that could certainly benefit. But for now, it does appear the market is pricing in less improvement in Opendoor’s financials than may otherwise be expected.

Diving Into the Company’s Most Recent Data

Despite a sluggish real estate market, Opendoor exceeded expectations in the second quarter. The company purchased 4,771 homes, a 78% year-over-year increase, and sold 4,078, slightly raising inventory. Additionally, Opendoor’s contribution margin reached 6.3%, surpassing its 5.4%-5.7% guidance. Opendoor’s adjusted EBITDA loss came in at $5 million, significantly better than the projected $30 million loss.

These results were certainly encouraging to some who are viewing the company through rose-colored glasses. Unfortunately, the market seemingly paid attention to the company’s weaker-than-expected outlook in its earnings report. With unexpected softening in prices in June, price cuts were required to move inventory and allow the company to achieve its sales goals.

Accordingly, the company now projects a 17% revenue decline in the third quarter, with its contribution margin dropping to a range of 2.9%-3.5%. Adding fuel to these concerns, the company’s adjusted EBITDA loss is now expected to widen to $60-$70 million, compared to the previous quarter’s $5 million loss.

Is OPEN Stock a Buy?

Opendoor is clearly navigating the tough housing market more effectively, with Zillow and Redfin exiting their iBuyer services. This leaves Opendoor with fewer competitors and a clearer path to growth. Though challenges remain, the company’s improving financial trends and low stock price make it an intriguing investment opportunity for those willing to take the risk and bet on a renewed bull market in housing.

Personally, I’m not one of those investors, considering the number of red flags in the housing market at present and my view that interest rate cuts could spur sellers to list more homes, actually driving lower prices over the medium-term.

We’ll have to see – that’s what makes markets, and I could certainly be wrong. But this is a stock I do think investors should be wary of at current levels.

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