Opendoor Technologies (NASDAQ:OPEN) is still very undervalued when compared to Zillow (NASDAQ:Z), the 800-pound gorilla in online residential real estate sales. I wrote about this in my Dec. 21 article, showing that Opendoor stock is worth much more.
I have since refined my analysis and now believe the stock is worth about 55% more. This uses a similar comparison of the valuation for Z stock.
As of Jan. 15, Opendoor stock was down since its SPAC merger closed on Dec. 17. At $26.03, the stock is off its near-term peak of $31.12 reached on Dec. 22. I am not too concerned about this as often there is a period of consolidation after a SPAC merger closes.
Valuing Opendoor Stock
Nevertheless, at least until both companies release their Q4 revenue, earnings, and balance sheet, we will compare them based on analyst estimates.
For example, based on p. 44 of Opendoor’s original presentation, the company has 630.17 million shares outstanding. In addition, that page indicates that there will be $1.539 billion in cash on the balance sheet.
In addition, the company projects on p. 39 that its 2021 sales will be $3.5 billion.
Therefore, we can make the following calculations: First, the pro forma market capitalization, with Opendoor stock at $26.03, is $16.42 billion. This is found by multiplying $26.03 by 630.17 million shares.
Moreover, the pro forma enterprise value (EV) is $14.88 billion. This is found by deducting the cash of $1.539 billion from the market cap of $16.42 billion.
As a result, we can now calculate the EV-to-sales ratio. The EV is $14.878 billion and the projected 2021 sales are $3.5 billion. Therefore, the EV-to-sales ratio is just 4.25.
Now we can compare this to Zillow Group, with its market cap of $33.91 billion. Based on its September financials, Zillow had $3.79 billion in cash and $1.838 billion in long-term debt. So its net cash was $1.952 billion. Therefore, its enterprise value is $31.96 billion.
Analysts project 2021 sales of $4.86 billion. Therefore, its EV-to-sales ratio is 6.83 (i.e., $31.96 billion divided by $4.68 billion).
Based on this metric, Opendoor’s EV should trade be 6.8x its sales. This means its EV should be 6.83x $3.5 billion in forecast sales. That equals $23.9 billion.
Moreover, we have to add back the $1.539 billion in cash to derive the pro forma market cap. This means the market cap for Opendoor stock should be $25.44 billion.
What To Do With Opendoor Stock
That represents a 55% gain over its $16.42 billion market cap right now. In other words, the comparable price with Zillow’s valuation is $40.34.
This is determined by multiplying 1.55 by $26.03, the price for Opendoor stock as of Jan. 15. This price is not completely out of the question since the stock moved up to more than $31 at the end of December.
As I mentioned earlier, I believe that the stock has had a typical post-merger sell-off . Previous weak holders of the stock sold off their shares once the merger closed.
Moreover, once Opendoor reports its operations for Q4 and provides an outlook for 2021, the sentiment on the stock will pick up. Of course, the same is true for Zillow. But that could end up raising the comp valuation for Opendoor stock as well.
One more thing: Zillow is now profitable, but analysts are not yet projecting profits for Opendoor. Therefore, you might think that the stock should have a lower valuation.
However, I don’t think that matters too much in this case. The reason is Zillow trades for over 800 times its 2021 forecast profits. In other words, since Zillow doesn’t stack up in profitability, I don’t think this metric matters very much.
Therefore, long-term investors will want to take a close look at Opendoor stock. It looks to be worth $40.34, or 55% over today’s price (Jan. 15).
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.
