Opendoor (NASDAQ:OPEN) is the market leader of the potentially lucrative online real estate space, which is also referred to as iBuying. In light of Opendoor’s recent lackluster earnings performance, it’s easy to think otherwise. However, the company is in a niche that is primed for disruption in the post-pandemic world. Moreover, its growth is very likely to rebound to the double-digit percentage level, lifting OPEN stock much higher in the process.
OPEN stock has lost about 50% of its value since completing its SPAC merger on Dec. 17. It continues to shed a fair amount of its value, as it fallen 12% in the last month. The stock appears to be priced for an extremely bearish scenario at this point.
The market is ignoring the massive potential gains by the stock that could be unleashed by Opendoor’s competitive strengths. However, based on average analyst estimates, the stock should be worth over 120% more than its current value. As market awareness of the company increases and macroeconomic conditions improve, the stock is poised for massive gains.
Key Growth Drivers
Opendoor generated a massive $4.7 billion of sales in 2019. In that year, it was operating in just 21 markets. The company has since added another 12 markets. Moreover, it’s on track to launch operations in 42 markets by the start of 2022. Naturally, these new venues will allow the company to cut its average costs and accelerate its top-line growth.
Meanwhile, the company has introduced its Opendoor-backed offer service (OBO). The service enables homebuyers to submit full-cash offers. This has attracted many buyers to Opendoor and has created a high number of cross-selling opportunities.
Moreover, the company’s culture of frugality is likely to have a positive long-term impact on its profitability. Knowing that Opendoor’s iBuying margins would be strikingly low, CEO Eric Wu ensured that the company’s culture was in-line with this reality. Therefore, he has created a cost-conscious culture, which focuses on maximizing savings and eliminating unnecessary perks commonly given by tech companies.
One of the main reasons for Opendoor’s success is its robust pricing algorithm. It’s not looking to buy at very low prices and sell at very high prices, but instead seeks to identify the highest price that it can pay for a home and still generate a profit. Because its competitors — Zillow (NASDAQ:Z) and Offerpad — do not possess such pricing engines, they have been forced to charge more than Opendoor for their homes to make the same profit on them.
Meanwhile, in the first quarter of the year, Zillow’s profitability per home improved substantially, but it ended the quarter with fewer homes than it started with. It began Q1 with 1,531 homes and ended it with 1,422 homes.
At the same time, Opendoor began the quarter with 1,827 homes in its inventory and finished Q1 with 2,959 homes. The more homes in an iBuyer’s inventory, the higher its earnings opportunity.
The Bottom Line on OPEN Stock
OPEN stock has tumbled since it went public last year. Opendoor’s earnings have not impressed investors a great deal lately, but that looks poised to change in the second half of the year. It has established itself as a leader in the nascent iBuying sector and has a competitive moat unmatched in the industry.
As a result of these points, OPEN stock is among the top Covid 19 recovery plays with incredible long-term growth potential.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines