Opendoor Technologies Inc. (OPEN) operates a digital platform for providing residential real estate services in the United States. The company enables consumers to buy and sell a home online and provides title insurance and escrow services.

On August 4, OPEN and Zillow Group, Inc. (Z) declared a multi-year partnership allowing home sellers on the Zillow platform to request an Opendoor offer to sell their homes seamlessly. Both the companies are working on launching this new product experience.

Over the past year, OPEN’s stock has declined 71.5%. It has declined 68.2% year-to-date and 10.1% over the past month to close its last trading session at $4.65.

Here are the factors that could affect OPEN’s performance in the near term:

Recent Settlement

Recently, OPEN reached a settlement with the Federal Trade Commission in which it would have to pay the commission $62 million and make corporate-wide changes to its practices. This followed an FTC investigation into the company’s practice of promising consumers that they would make more money selling their homes to OPEN than on the traditional market.

The company stated, “While we strongly disagree with the FTC’s allegations, our decision to settle with the Commission will allow us to resolve the matter and focus on helping consumers buy, sell and move with simplicity, certainty and speed.”

Negative Profit Margins

OPEN’s trailing-12-month gross profit margin and EBITDA margin of 9.68% and 0.28% are 86% and 99.5% lower than their respective industry averages of 68.91% and 56.94%. Its trailing-12-month net income margin of a negative 1.77% is significantly lower than the industry average of 17.65%.

The stock’s trailing-12-month ROE, ROTC, and ROA of a negative 11.48%, 0.18%, and 2.70% compare to their respective industry average of 5.16%, 2.18%, and 2.38%.

Unfavorable Analysts Expectations

The consensus EPS estimate of a negative $0.26 for the quarter ending September 2022 indicates a 188.9% year-over-year decrease. Analysts expect EPS for the quarter ending December and for fiscal 2022 to come in at a negative $0.23 and a negative $0.11.

Street EPS estimate for the fiscal year 2023 of a negative $0.32 indicates a decline of 190.9% from the prior year. Moreover, the consensus revenue estimate of $3.48 billion for the quarter ending December 2022 reflects an 8.9% year-over-year decrease.

POWR Ratings Reflect A Bleak Outlook

OPEN’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

OPEN has a Stability grade of F in sync with its five-year monthly beta of 1.23. The stock has an F grade for Sentiment, consistent with the unfavorable bottom-line expectations.

OPEN has a Quality grade of D. Its negative profitability margins justify this grade.

In the 42-stock Real Estate Services industry, it is ranked #38. The industry is rated D.

Click here to see the additional POWR Ratings for OPEN (Growth, Value, and Momentum).

View all the top stocks in the Real Estate Services industry here.

Bottom Line

OPEN’s new multi-year partnership might be beneficial. However, the company recently reached a settlement to pay a hefty sum, which could strain its finances. On top of it, analysts expect its bottom line to remain negative until the next fiscal year. Hence, I think the stock might be best avoided now.

How Does Opendoor Technologies Inc. (OPEN) Stack Up Against its Peers?

While OPEN has an overall POWR Rating of F, one might consider looking at its industry peers, Colliers International Group Inc. (CIGI) and Marcus & Millichap, Inc. (MMI), which have an overall B (Buy) rating.

OPEN shares were trading at $4.71 per share on Wednesday morning, up $0.06 (+1.29%). Year-to-date, OPEN has declined -67.76%, versus a -12.15% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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