With a $1.98 billion market cap, Opendoor Technologies Inc. (OPEN) operates a digital platform for residential real estate in the United States. The company’s platform allows consumers to buy and sell a home online. In addition, it offers title insurance and escrow services.

Last week, the Federal Reserve announced the third consecutive 75-basis-point interest rate hike to battle rampant inflation. Furthermore, central bank officials expect to hike rates to 4.4% by the end of this year.

The cost of borrowing has become expensive this year, with interest rates rising in tandem with inflation. Since the rate hikes have dampened the housing market by making loans unaffordable for home buyers, shares of OPEN witnessed a significant price decline.

On the other hand, last month, the Federal Trade Commission took action against the online home buying company OPEN for misleading potential home sellers. The company used misleading and deceptive information to trick them into thinking that more money could be made by selling the home to Opendoor than on the open market using the traditional process.

In reality, most people who sold to OPEN’s platform made way less money than they would have made selling their homes through the traditional process. Under a proposed administrative order, the company is expected to pay $62 million and end its deceptive tactics.

Shares of OPEN have declined 68.1% over the past six months and 79.2% year-to-date to close the last trading session at $3.14. The stock is trading 87.6% below its 52-week high of $25.33, which it hit on November 1, 2021.

Here is what I think could influence OPEN’s performance in the upcoming months:

Deteriorating Financials

OPEN’s operating expenses increased 46% year-over-year to $454 million for the fiscal 2022 second quarter ended June 30, 2022. The company’s loss before income taxes was $53 million. Its net loss and loss per share attributable to common shareholders came in at $54 million and $0.09, respectively. In addition, its total liabilities stood at $7.78 billion as of June 30, 2022.

Weak Growth Prospects

Analysts expect OPEN’s revenues to decline 23.8% year-over-year to $2.91 billion in the fiscal 2022 fourth quarter (ending December 2022). The consensus loss per share estimate of $0.44 for the same quarter indicates a widening of 40.3% from the prior-year period. Also, the company has failed to surpass the consensus EPS estimates in three of the trailing four quarters.

Furthermore, the company’s loss per share for the fiscal 2022 and 2023 is expected to come in at $0.96 and $0.83, respectively.

Low Profitability

OPEN’s trailing-12-month gross profit margin of 9.68% is 85.9% lower than the 68.75% industry average. And its trailing-12-month EBIT margin of negative 0.14% compares to the 24.02% industry average. Likewise, the stock’s EBITDA margin of 0.28% is 99.5% lower than the industry average of 56.99%.

In addition, OPEN’s trailing-12-month net income margin of negative 1.77% compares to the 17.65% industry average. The stock’s negative ROCE, ROTC, and ROTA are 11.48%, 0.18%, and 2.70%, compared to the industry averages of 5.16%, 2.19%, and 2.38%, respectively. Its trailing-12-month CAPEX/Sales of 0.27% is 92.3% lower than the 0.13% industry average.

POWR Ratings Reflect Bleak Prospects

OPEN has an overall F rating, translating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. OPEN has an F grade for Quality, in sync with its lower-than-industry profitability metrics.

In addition, the stock has an F grade for Stability. The stock’s beta of 2.62 justifies the Stability grade.

OPEN is ranked #38 out of 40 stocks in the D-rated Real Estate Services industry. 

Beyond what I have stated above, we have also given OPEN grades for Value, Sentiment, Growth, and Momentum. Get all OPEN ratings here.

Bottom Line

The tech-focused real estate services company OPEN is expected to incur losses in fiscal 2022 and 2023. Moreover, the stock is trading more than 75% below its 52-week high. And given the volatile market conditions owing to the Fed’s monetary policy tightening and growing fears of an economic downturn, the stock might fall further.

Given OPEN’s poor profitability and bleak growth prospects, we think the stock is best avoided now.

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

OPEN has an overall POWR Rating of F, equating to a Strong Sell rating. Therefore, one might want to consider investing in other Real Estate Services stocks with a B (Buy) rating, such as Hang Lung Properties Limited (HLPPY), City Developments Limited (CDEVY), and Colliers International Group Inc. (CIGI).

OPEN shares were unchanged in premarket trading Friday. Year-to-date, OPEN has declined -78.44%, versus a -22.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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