Ever heard of Opendoor Technologies (OPEN +7.21%)? No biggie if you haven't. With a market cap of less than $2 billion, it's a stock that doesn't turn many heads.
If you're looking for a new growth opportunity, though, don't let the company's small size fool you. This stock's potential upside is still big. It just needs the right nudge. And that nudge might already be in the works.
Opendoor Technologies, up close and personal
Opendoor is a listing platform for residential real estate. It's in the same vein as Zillow Group and Redfin, but it's not a carbon copy of the two more-trafficked websites. Opendoor is largely a self-service selling and buying marketplace. The company will also buy sellers' homes from them, allowing people to sidestep the usual time and hassle of selling through a traditional real estate agent.
It's also a much younger company than its chief rivals, as is its stock. Opendoor was launched in 2014, and only became a publicly traded company in December 2020, capitalizing on the mania for initial public offerings (IPOs) at the time.
Investors snapped it up because most people were shut in by the pandemic at that time, with little to do. Plowing into hot new story stocks became a pastime for some investors.
NASDAQ: OPEN
Key Data Points
The bullishness didn't last. As was the case with so many other newly minted stocks around that time, Opendoor's post-IPO rally carried its stock price to a high of more than $39 in early 2021 before it began a long, agonizing sell-off. Shares now trade about 95% below that peak price, with the company's persistent lack of profits undermining bullish interest.
OPEN revenue (quarterly) data by YCharts.
The tepid real estate market since early 2022 certainly hasn't helped, either.
Nothing lasts forever, and as veteran investors can attest, the time to step into a good stock is when it's out of favor and awaiting success nobody sees coming. That's arguably where Opendoor Technologies is now.
Forward progress is enough right now
It is still a high-risk prospect. The field of online real estate listing sites is already crowded and dominated by two titans, Redfin and Zillow. The company is also still in the red and will likely remain so for a long while.
But Opendoor is making progress toward profitability, and sometimes a bullish trajectory for a business's top and bottom lines is enough to push its stock higher in anticipation of an eventual swing to a profit. In this case, the analyst community believes the company will reach that milestone in 2027.
Data source: StockAnalysis.com. Chart by author.
And it could get there by then despite the challenging environment at this time, which is just the nature of the economic cycle, and the subsequent real estate cycle.
Higher interest rates are undermining home purchases right now, but they're also achieving the desired effect of lowering overheated prices and tamping down inflation. The Federal Reserve still foresees a handful of interest rate cuts between now and the end of 2025 even if the market doesn't expect to see the first of these cuts until September. It will turn into a tailwind for the real estate market sooner or later, boosting Opendoor's business as a result.
A recovery of the residential real estate market is apt to last a while, too, helping the company reach profitability. Although the estimate can vary from one source to the next, data from Realtor.com suggests the U.S. needs as many 7.2 million more homes than it currently has. Opendoor can't build these residences, but it can certainly help people deal with the shortage by serving as a homebuying intermediary in the years it takes to build these new homes.
Just respect the risk
It's still not for everyone. If your portfolio needs reliability and consistency, Opendoor shares will likely leave you wanting. The stock seems to be stuck in a downtrend it just can't snap out of, and is back within sight of multi-month lows that it hit last month.
The analyst community isn't helping much, either. Its consensus price target of $2.58 is only a bit above the stock's present price, and of the handful of analysts following it, the vast majority of them only rate it a hold. Again, it's not a pick for everyone.
But if you can stomach the risk, and you truly believe the real estate market is on the mend, Opendoor is a compelling way to play it. You just might want to limit your risk by keeping your position a bit smaller than you normally might.
