Opendoor Technologies Inc. (OPEN - Get Rating) operates a digital platform in the United States, offering residential real estate services. It allows customers to buy and sell homes online and offers title insurance and escrow services.

Bank of America reported on Tuesday that the rate of wire payments to escrow and title companies — often used to pay deposits for house sales — has declined this year for the first time since the COVID crisis in mid-2020, adding to rising signals of a housing market downturn.

According to the National Association of Realtors, over 20% fewer homes sold in August this year than in the same month last year.

The company’s shares have slumped 88.5% over the past year and 81.5% year-to-date to close its last trading session at $2.81. In addition, the stock is currently trading 88.9% below its 52-week high of $25.32, which it hit on November 01, 2021.

Here’s what could shape OPEN’s performance in the near term:

FTC Settlement

In August, OPEN signed an agreement with the Federal Trade Commission (FTC) in which it settled to pay the FTC $62 million and make corporate-wide reforms to its practices. This resulted from an FTC inquiry into OPEN’s practice of assuring customers that they would make more money selling their homes to the firm than they would on the open market.

OPEN said, “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.”

Poor Profitability

OPEN’s trailing-12-month negative gross profit margin of 9.7% compares to the industry average of 68.8%. Also, its trailing-12-month ROC, net income margin, and ROA are negative 11.5%, 1.8%, and 2.7%, respectively. Moreover, its CAPEX/Sales multiple of 0.27% is 92.3% lower than the industry average of 3.6%.

Weak Earnings Estimates

Street expects its EPS to decline 466.7% in the current quarter ending September 2022 and 55.2% in the next quarter ending December 2022. In addition, its EPS is expected to remain negative in the current and next year.

POWR Ratings Reflect Bleak Outlook

OPEN has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. OPEN has an F grade for Stability, Quality, and Sentiment. The stock beta of 1.45 justifies the Stability grade. The company’s negative profit margins are consistent with the Quality grade. In addition, analysts’ poor earnings estimates are in sync with the Sentiment grade.

Of the 40 stocks in the F-rated Real Estate Services industry, OPEN is ranked #38.

Beyond what I’ve stated above, you can view OPEN ratings for Growth, Value, and Momentum here.

Bottom Line

Rising interest rates are projected to keep the housing market under pressure. Moreover, OPEN is currently trading below its 50-day and 200-day moving averages of $4.22 and $6.96, respectively, indicating a bearish trend. Given its negative profit margins and poor growth attributes, we think the stock is best avoided now.

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

While OPEN has an overall D rating, one might want to consider its industry peers, Jones Lang LaSalle Incorporated (JLL - Get Rating), Comstock Holding Companies Inc. (CHCI - Get Rating), and Hang Lung Properties Limited (HLPPY - Get Rating), which have an overall B (Buy) rating.

OPEN shares were trading at $2.45 per share on Friday afternoon, down $0.26 (-9.59%). Year-to-date, OPEN has declined -83.23%, versus a -23.80% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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