Investors in Opendoor Technologies (OPEN 0.80%) have experienced huge share-price swings over the last three years. A massive run-up amid a surging housing market during the pandemic gave way to huge losses and questions about the company's viability as parts of the housing market collapsed.

Since its disastrous crash, Opendoor has taken steps to restore stability to the company, and the stock has risen more than 220% since the beginning of the year. Does that mean the stock is on the road to recovery, or is the upturn a head fake that could fool investors? Let's take a closer look.

The bear case for Opendoor

Opendoor operates in the iBuying market, a digital platform for real estate transactions, specifically with regard to homes. Through such transactions, it seeks to profit from commissions, selling homes for more than it paid, and interest on home loans.

The model appeared to work for Opendoor until the spike in interest rates led to prices collapsing in many markets. This situation forced Opendoor to sell many homes at a loss, and its stock plummeted between late 2021 and throughout 2022.

Despite a recovery this year, Opendoor stock sells at approximately a 90% discount to its early 2021 high. And according to the Federal Reserve Bank of Atlanta, the home affordability index is at 69.5, below the lows experienced in 2006. This increases the likelihood of further challenges in the housing market.

Moreover, Opendoor's finances point to continued struggles. The company brought in $5.1 billion in revenue in the first half of 2023, a 45% drop from the same period in 2022. And thanks to operating losses, Opendoor's net loss for the first two quarters of 2023 came in at $78 million, up from a $26 million loss during the year-ago period.

Although gains from paying down debt mitigated the losses, a failure to turn an operating profit continues to weigh on investor sentiment. Additionally, a third-quarter forecast for earnings before interest, taxes, depreciation, and amortization (EBITDA) losses as well as analyst predictions of losses may continue to weigh on the stock.

Why investors should still consider Opendoor stock

Nonetheless, its $1.2 billion in liquidity means it can operate at the current rate of losses for years to come, a factor that will give bulls comfort as Opendoor navigates a high interest rate environment. Such a position may have played a role in the rising stock price this year.

Also, its price-to-sales (P/S) ratio now stands at 0.2. That compares favorably to the 2021 bull market when the sales multiple rose as high as 7.5.

Furthermore, the market downturn revealed strength in the company. As troubles mounted, Opendoor drastically cut its sales, marketing, and operations expenses and the general and administrative expenses. In the first half of 2023, operating expenses fell to $511 million versus $871 million in the year-ago period.

Additionally, competitors such as Zillow Group and Redfin exited the iBuying market. This has left Offerpad Solutions as its only direct competitor. With consumers' enduring need for places to live, these conditions make it more likely that Opendoor will continue to attract buyers and sellers.

Should investors buy?

Given the conditions of both the real estate market and Opendoor itself, investors should consider the stock. Indeed, interest rates remain a concern, and with home affordability at multiyear lows, the chance of another drop in prices is not out of the question.

However, Opendoor has proven it can adapt quickly to deteriorating conditions. With an enduring need for real estate, the market will recover eventually, a factor that should drive buyers and sellers back to the real estate management stock.