Opendoor Technologies (OPEN -1.03%) stock dropped 34% in April, according to data provided by S&P Global Market Intelligence. There wasn't any news specific to Opendoor in April, but the market was pessimistic due to stubborn inflation, and companies like Opendoor that are affected by inflation took a strong hit from the negative sentiment.
Opendoor's struggles won't end until the housing market improves
Opendoor operates an iBuying business, which means it buys properties for resale on its website and provides a digital marketplace for homes. It sees several competitive advantages, such as being able to help a family sell and buy in almost one transaction for a seamless, lower-cost experience.
It uses artificial intelligence (AI) to accurately and quickly price homes so it can move quickly to make a cash offer, and it uses the same large pool of data points to manage inventory and optimize its portfolio. It sees real estate as an industry largely untouched by and ripe for digital disruption, bringing it massive potential to benefit from the eventual move.
Whether or not it can accomplish this remains to be seen, because while there are positive indications, its business has been struggling through a terrible housing market. With sky-high mortgage rates, people aren't moving, and there are fewer homes for sale.
According to the latest housing market update from Redfin, for the first time in two years, there isn't any major U.S. metro area where home prices are falling. In April the national median home sale price increased 4.8% year over year to near-record levels.
At this rate, Opendoor isn't going to become a growth stock anytime soon.
Is this an opportunity to buy on the dip or a value trap?
Opendoor is managing efficiently under these circumstances. It purchased almost 4,000 homes in the 2024 first quarter, almost double last year's figure. It sold 3,078 homes for $1.2 billion, more than its guidance for a high of $1.1 billion. Gross profit was $114 million with a 9.7% margin, and although earnings before interest, taxes, depreciation, and amortization (EBITDA) was a $50 million loss, it was better than expected.
I wouldn't call this an opportunity to buy on the dip or a value trap; it's just an unknown. Opendoor stock trades at the dirt cheap valuation of 0.3 times trailing-12-month sales, and if the business recovers, it could deliver incredible gains for investors. But you'd have to be highly risk-tolerant to take that chance, and even if it does happen, it isn't likely to be for a while. Right now, your money could be invested more effectively elsewhere.
