The S&P 500 rose last week after the Federal Reserve announced its first interest-rate cut in four years. Lower rates are meant to boost the economy and should result in more money changing hands and higher revenue for many struggling companies and industries.
Opendoor Technologies (OPEN +0.23%) is a real estate technology company that wants to change how Americans buy and sell their homes. Residential real estate is one of the largest industries in the country, and the opportunity is enormous.
Its stock is down 94% from its highs. As interest rates decline and the real estate industry rebounds, Opendoor stock could skyrocket.
So far, not so good
Opendoor's business has been absolutely crushed by rising mortgage interest rates. Homeowners aren't selling because they don't want new mortgages at higher rates, so buyers aren't finding much available. The company's revenue is down 24% from last year, and that was already down 53% from the year before.
Things have only been getting worse. According to Redfin data, August home sales fell 4.7% year over year, while the median housing price increased 3.1%. That's even as the national average 30-year fixed-rate mortgage rate fell 0.57 percentage points to 6.5%.
Opendoor stock hasn't gotten much of a boost from the announcement of lower interest rates. It's down 54% this year alone.
An uphill climb
That's the meat and potatoes of what's been going wrong. But there are actually many things going right -- or at least pointing to what could be a highly successful venture in the future.
First is the opportunity. Opendoor services a $1.9 trillion market, of which it has just 1%, and it's trying to develop a superior alternative to legacy processes. Selling and buying a home the traditional way with a broker is an intensive, multistep process. Opendoor is looking to simplify that process by offering fast and easy digital services.
It gives quick cash offers and handles both sides, so a user can sell their home and find something else through Opendoor's platform. It provides three ways to use the platform: selling a home directly to Opendoor, which takes out the hassle of bringing in multiple potential buyers to view a home and negotiate; listing a home on Opendoor's marketplace; or working with Opendoor's agents to find qualified buyers.
NASDAQ: OPEN
Key Data Points
It purchased 4,771 homes in the second quarter, 78% more than last year, bringing total inventory up to 6,399. That puts it in a position to benefit when trends shift in its favor.
Management sees a path to profitability as it rebuilds its inventory with healthier margins. Gross margin widened from 7.5% last year to 8.5% in this year's second quarter, although the company reported a $92 million net loss.
Opendoor is expected to report a net loss for full-year 2024 and even 2025, so don't expect anything better soon. However, it beat earnings-per-share (EPS) (or in this case, loss-per-share) projections for the past four quarters. I don't think that means it will come in positive anytime soon, but a beat says positive things about management's capabilities and often leads to a jump in the share price, depending on what else is happening with the stock.
Light at the end of the tunnel
Opendoor stock trades at a dirt cheap price-to-sales ratio of 0.3 and just over $2 per share. That shows how much the market thinks of it right now. But there's a lot in place in terms of the company's technology, opportunity, and positioning to have confidence in an incredible rebound.
Is this a risky play? Definitely. It's not for the faint of heart or anyone who needs their investment money in the near future. However, if you have an appetite for risk, some money to put away for a while, and a long-term horizon, even $10 will get you five shares. You might want to take a small position right now at these beaten-down prices.
