For years, real estate transactions have been begging for a change. While I love working with the folks in the field, the problem is that the “analog” method of buying or selling a home is incredibly antiquated. Fortunately, with Opendoor Technologies (NASDAQ:OPEN), we can bring this sector to the 21st century. Through its digitalized services, you can really cut through the gunk, making OPEN stock quite compelling.
Primarily, one of the biggest problems that homebuyers have is what to do with their current home upon which they may have a mortgage. With real estate being the biggest purchase most of us will make, having to pay an extra mortgage payment on the old home while making one for the new place just isn’t something people want to do.
Fortunately, with Opendoor’s robust buying and selling services, you have myriad options, including selling directly to the company. If you elect this road, you can take your time to find the perfect home for you.
Once that’s accomplished, you can coordinate your old home’s sale close date with your new abode’s purchase date, avoiding double payments. It’s smart thinking like this that has drawn much interest toward OPEN stock.
Moreover, such conveniences have become incredibly pertinent in the wake of the novel coronavirus pandemic. During the early days of the crisis, few people wanted to showcase their home to strangers who potentially could have the virus. And while it’s true that much of this fear has subsided, for many others, it’s still a powerful negative catalyst.
For instance, a Deloitte survey revealed that most Americans will be uncomfortable watching a movie at the box office until mid-2021. Having people in your house is a much more personal affair, which suggests that OPEN stock still has this cynical incentive to advantage.
OPEN Stock Isn’t All Open Roads
While the business model itself is intriguing, it has to translate to a sustainable one. Otherwise, shareholders could bail on OPEN stock. That’s one of the reasons why my InvestorPlace colleague Alex Sirois happens to be skeptical about the underlying company.
In his words, “The bullish thesis for purchasing OPEN stock is that the company is digitizing the less-than-fun process of buying a home. But that alone isn’t a compelling reason for buying into shares now.”
Sirois went on to state, “A cursory glance at Opendoor’s cash position indicates that it has much more cash to end 2020 than it did when it ended 2019. But that’s simply a product of having converted preferred stock to common stock.”
Moreover, Opendoor is generating hefty losses on far less revenue, which indicates that recent volatility in OPEN stock isn’t just about a sympathy trade with the broader tech sector. Instead, there could be something fundamental printing the red ink.
From my perspective, it seems that the company represents a litmus test on one’s belief in the economic recovery. Yes, we may be seeing light at the end of the Covid-19 tunnel, but we could also be facing more pain economically. Big picture, though the weekly jobless claims are declining, they’re still registering devastatingly high numbers.
That makes me wonder about the overall sustainability of the housing market. True, affluent buyers stepped up to buy homes last year to take advantage of rock-bottom rates, but that clearly doesn’t describe everyone’s situation.
Further, the latest data on real estate lending activity shows a decline since approximately mid-January of this year. Also, we saw a dip in loans during the fourth quarter of 2020. Could that have contributed to the Q4 revenue decline that Sirois mentioned? I don’t think you can rule it out.
A Possible Technical Clue
Finally, I find it interesting that following the volatility in OPEN stock that began earlier this month, shares rebounded to the 50-day moving average. Just as with the associated fundamentals, Opendoor is a confusing beast.
For instance, you have soaring housing prices, which imply strong demand. At the same time, you have an economy that for many is on life support – otherwise, why the bitter debate about continued stimulus checks?
Sure enough, the technicals reflect this ambiguity. OPEN stock didn’t rise convincingly above the 50 DMA. No, that would be too easy. Instead, it’s hanging right on it, suggesting that it could go either way.
Personally, I’m not a big fan of these 50/50 setups (probably because I lose so much of them). I must say though that I don’t find the latest price action of OPEN stock very convincing. For that reason, I’m going to watch this with curiosity from the sidelines.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
