Opendoor Technologies (OPEN 14.13%) stock has taken investors on a wild ride recently, and it has a big test coming up on the near horizon. The company will report its second-quarter report after the market closes on Aug. 5, and results in the period could spur a huge valuation swing for the real estate services specialist.
Opendoor's share price has recently surged thanks to the company becoming a new favorite among meme-stock traders, and it's still up more than 280% over the last month despite pulling back a bit from its recent high. With the company's Q2 report on deck, investors may be wondering whether buying into the stock ahead of earnings is a good move. Take a look at the chart below for a snapshot of the stock's historical performance following its quarterly reports.
Image source: The Motley Fool.
Opendoor stock has been highly volatile after earnings
Opendoor has historically seen a high level of valuation volatility following its earnings reports. While the company has seen some instances in which its quarterly reports helped power huge gains for its stock, its reports have more frequently corresponded with substantial sell-offs.
Despite its recent meme-stock surge, the company's share price is still down 12.5% over the last year. Shares are also down roughly 81% over the last five years of trading.
Opendoor's recent valuation gains have largely been driven by its newfound meme-stock status and appear to be mostly divorced from any fundamental improvements for the business or its outlook. The gains caused the company to delay the vote on a reverse stock split that could have been needed to keep the stock above the $1 per share level needed to remain listed on the Nasdaq stock exchange, but it remains to be seen if its recent surge will hold.
Historically, Opendoor stock has not been a great performer following the company's earnings reports. On the other hand, that doesn't provide a clear indication about how the stock will perform after its next report -- and unpredictability has only been heightened by the company's status as a meme stock.
Is Opendoor poised for another big post-earnings valuation move?
With a forward price-to-sales (P/S) ratio of roughly 0.3, Opendoor is valued at just 30% of this year's expected sales. The company's still relatively modest forward P/S ratio does potentially open the door for explosive gains and has helped to make its shares attractive to meme-stock traders.
OPEN PS Ratio (Forward) data by YCharts
With its last quarterly update, Opendoor guided for sales between $1.45 billion and $1.525 billion in the second quarter. The company also guided for a contribution profit between $65 million and $75 million, and non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) between $10 million and $20 million.
Given recent meme momentum surrounding the stock, it's possible that even relatively small performance beats could power big valuation gains for the company after its Q2 results are published. On the other hand, there are some key factors outside of sales and earnings performance for the quarter that could shape trading in the near term.
With Opendoor stock having gotten a big boost from meme-related trading, management may want to seize the opportunity to sell new stock at its current elevated levels in order to raise funds and strengthen the company's balance sheet. Selling new shares could create a substantial source of new capital for the company and be a smart long-term move, but share dilution could burst Opendoor's meme momentum and lead to big sell-offs for the stock. So while there's no way of knowing exactly which way the stock will head after earnings, there are good reasons to expect more big volatility in the near future.
