Shares of the iBuying real estate platform Opendoor (OPEN 36.97%) have absolutely ripped this week on meme stock activity and hopes that an activist investor could get involved. Since the market closed last Friday, shares have blasted roughly 109% higher, as of 2:48 p.m. ET Thursday.
The next big meme stock?
Meme stocks haven't gone away since the GameStop saga and always seem to poke their head up when the market is doing well. According to Stocktwits' editor-in-chief Tom Bruni, interest in Opendoor on the social platform increased fourfold between Monday and Tuesday of this week, as measured by page views.
Image source: Getty Images.
The original meme stock sub-Reddit r/WallStreetBets also discussed Opendoor this week, and 560,000 contracts with bullish bets were traded, as of Wednesday. At the end of June, more than a quarter of the company's float was sold short, a key ingredient for a short squeeze.
Additionally, EMJ Capital founder Eric Jackson started tweeting about the company this week and potentially getting involved as an activist. Jackson sees potential in the company's iBuying platform, which offers people a quicker way to sell their homes online, and then resells the properties. iBuying typically involves higher fees than a real estate agent might charge.
Jackson also expressed frustration with management, but ultimately floated the idea that the company could be worth as much as $82 per share under the right turnaround plan and if the macro-environment cooperates. The stock traded around $1.56 per share, as of this writing.
Does the thesis have merit?
From a financial perspective, Opendoor has a high cash burn rate and high debt levels, although a lot of the debt is asset backed. Opendoor has also struggled due to the high-interest rate environment, which has suppressed most of the real estate sector. Lower rates could be a big tailwind.
Overall, I think Opendoor's business model is much more compelling than other meme stocks in dying industries like GameStop and AMC. But due to the financial challenges and uncertainty in the macro-environment, investors still need to treat this a highly speculative investment. Only invest what you can afford to lose.
