Has Opendoor Stock Bottomed Out?

OPEN stock - Has Opendoor Stock Bottomed Out?

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Opendoor Technologies (NASDAQ:OPEN) stock would feature in the infamous list of stocks that have been under-performers in the last 12-months. During this period, OPEN stock has slumped by 65%. Even after the big correction, OPEN stock currently has a short-interest that’s 15.33% of the free-float. Does it imply that the stock has more downside?

On the contrary, I believe that OPEN stock might be poised for a short-squeeze rally. Currently, eight analysts have a 12-month forward median price forecast of $15 for the stock. This represents a 104% upside potential from current levels. Even the most bearish analyst has a price target of $8, which is higher than current levels of $7.30.

Clearly, it seems that OPEN stock will have a reversal rally. As such, I would look at the stock as a good trading bet for 10% to 20% near-term upside. At the same time, I would be cautious on any long-term exposure to Opendoor. A key factor to consider is accelerating inflation and the prospects of multiple rates hikes in 2022.

For Opendoor, the growing home inventory also means higher debt. As cost of debt rises, key margins are likely to be impacted. Furthermore, the outlook for home buying amid high inflation and interest rates might be uncertain. There is some optimism from the fact that between 2005 and 2007 interest rate trended higher, but housing demand also surged. Of course, that was an era of sub-prime loans.

For now, Opendoor has reported robust numbers. Only 8% of the homes have been listed on the markets for more than 120 days. The company’s inventory needs to be closely monitored in the next few quarters.

The EBITDA margin also remains a concern for investors. For 2021, Opendoor reported revenue of $8 billion and adjusted EBITDA of $58 million. This was the first time the company reported profitability at the operating level.

For Q1 2022, Opendoor has guided for revenue of $4.2 billion (mid-range). The company has also guided for an EBITDA margin of 0.8%. If strong growth and margin expansion can sustain in the next few quarters amid the rate hike headwind, OPEN stock is likely to trend higher.

Long-term investors also need to watch-out for a potential recession in 2023. The company’s sales, margin and value of inventory might be impacted in a recession scenario. Overall, I would look to trade OPEN stock from oversold levels. However, there are too many ifs and buts from a long-term horizon.

On the date of publication, Faisal Humayun 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.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.


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