Opendoor Technologies (NASDAQ:OPEN) produced loss-making financials on Feb. 24, which ended up pushing the stock lower. For example, on Feb. 24, OPEN stock was at $10.98, and by April 20, almost two months later, it is down by 25%.
The home-buying company (now its main activity) produced nothing but losses and increased its debt leverage. No wonder then that OPEN stock has cratered.
For example, in Q4 it lost $191 million in net income as well as an adj. net loss of $80 million. Moreover, for 2021 in total, its net loss was $662 million, versus a lower loss of $253 million in 2020. On an adjusted basis, it lost $116 million in 2021 vs. $175 million lost last year. Who wants to own a stock that keeps on increasing its losses? That seems to be what the market is saying about OPEN stock so far.
Moreover, the company’s net leverage position has risen. Opendoor Technologies now has $7.2 billion in total liabilities, up from $623 million last year. The problem is that if the value of the company’s inventories and homes, which ballooned from $466 million last year to over $6 billion at the end of 2021, were to fall, the company’s valuation could take a swift hit.
Caution Required With OPEN Stock With Lower Real Estate Activity
Moreover, if it can’t flip these homes as fast it used, given the higher interest rate environment now, the company could face some real trouble. For example, The Mortgage Banker’s Association (MBA) reported on April 14 that mortgage applications for new home purchases fell. They fell by 5% from a year ago in March and by 10% from February 2022, a month earlier.
This is a direct result of higher interest rates. The average rate for 30-year mortgages increased to 5.13%, according to CNBC. This is up from 4.90% for conforming mortgage loans with 20% down. As a result, MBA has now forecast lower new home sales for the fourth month in a row. In addition, MBA expects that there will be a 35.5% decrease this year in total mortgage originations in 2022.
So investors in OPEN stock should take some caution. This could hurt their ability to buy and sell existing homes, as activity slows down in the real estate sector over the next year.
On the date of publication, Mark Hake did not hold (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.