Opendoor Technologies (OPEN 0.71%) is probably not a stock you heard much about last year -- it lost nearly two-thirds of its value in 2024. The company is in the business of flipping houses at a time when the housing market hasn't been all that strong, which may explain the abysmal performance.
But it's been a different story for the stock this year. While the housing market is by no means red hot, investors appear to be bullish on Opendoor's future, and its low valuation may have enticed many people to take a chance on the business. As of Nov. 28, its year-to-date gains were impressive at around 360%.
Has the stock run out of room to rise higher, or could it still be a good buy at its current levels?
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Has Opendoor's stock run out of steam?
Opendoor's stock took off in July and continued its rally into September. But outside of that range, the stock hasn't been moving all that much. Last month, it was flat.
One way to gauge the overall interest in a stock is by looking at trading volumes to see how often the stock is changing hands. In the summer, when Opendoor was surging in value, unsurprisingly, volumes were up significantly as well. It's a sign that interest from retail investors was high.
OPEN Volume data by YCharts
Lately, however, trading volumes trended lower. Retail investors may have moved on from Opendoor, which, from the start, looked like a risky meme stock due to its underwhelming financials.
The company's financials need a lot of work
A big reason why investors weren't thrilled with Opendoor last year was that its financial performance simply wasn't that great. It was unprofitable and its top line was going in the wrong direction. You may be surprised to learn that despite its impressive rally this year, those problems haven't gone away.
OPEN Revenue (Quarterly) data by YCharts
The company recently brought on a new CEO, Kaz Nejatian, who joined the company earlier this year. Nejatian, who was previously with e-commerce giant Shopify, hopes to turn the business around by making it more efficient with the help of artificial intelligence (AI).
While making processes leaner can help improve productivity and bring down costs, the nature of house flipping is that it can be extremely risky and difficult to generate profits. Opendoor is a great example of that, as its gross profit margin has averaged a lowly rate of just 8% over the past 12 months. AI may help the business improve, but I'd be skeptical about the company's ability to turn a profit anytime soon.
NASDAQ: OPEN
Key Data Points
Why I'd stay away from Opendoor's stock
Opendoor's financials are full of red flags that investors shouldn't overlook. Between declining revenue, poor margins, and persistent operating losses, there are no shortage of challenges ahead for the company. Its sudden and brief rally reinforces the idea that this is nothing more than a meme stock that skyrocketed for no justifiable reason, and that it is merely a speculative investment.
The one quality the stock had that looks to be disappearing nowadays is excitement from retail investors. Without that, there's little reason to expect that Opendoor's stock can rally much higher from where it is today, unless it drastically improves its financials. That's not an easy task, and investing in the business based on that assumption is a big risk.
While Opendoor may look modestly priced, trading at just 1.2 times its trailing revenue, that doesn't mean the stock can't go lower as its lack of profitability and growth are still huge problems. There are many better growth stocks out there to consider than Opendoor; the stock just isn't worth the risk.
