Opendoor Technologies (NASDAQ:OPEN) shares have rallied 31% in the past month, closing at $9.06 on Apr. 4. OPEN stock has losses of approximately 39% in 2022 despite this latest rally. As Opendoor Technologies reported the fourth quarter (Q4) and full-year 2021 financial results on Feb. 24, we can assume with a high degree of confidence that its stock price rally was fueled by its financials. With a 52-week range of $6.16 – $25.33, the stock has made a nice rebound from its 52-week low on Mar. 8. Will a bottom price be formed in 2022? The latest rally seems to be overdone based on the true fundamentals of the company. Here are the key reasons why this rally makes OPEN stock a sell now.
For Q4 2021 and full year 2021, Opendoor reported an increase of 1,435% in revenue for Q4 and 211% in revenue for the full year. Revenue growth of that scale is a key argument, but the stock is a myopic approach to stock investing. Opendoor is an operator of a digital platform for residential real estate in the U.S. and in Q4 2021, it reported a significant increase in its inventory of homes. It stated that it “grew inventory balance to 17,009 homes, representing $6.1 billion in value, up 1,208% versus 4Q20.”
Opendoor has a weak balance sheet with plenty of debt and a debt-to-equity (D/E) ratio of 3.16. The stock also has a Piotroski F-Score of 2, which is too low, implying poor business operation. This is confirmed by an Altman Z-score of 1.47, signaling the company is in a distress zone. This implies a bankruptcy possibility in the next two years. A weak balance sheet with lots of debt in an era of rising interest rates is a worrisome fact. Profitability is another area that Opendoor is very weak in. It has been losing money as of 2019. In theory, the digital platform for buying and selling homes should be highly profitable. But this is far from being true.
In 2021, Opendoor reported a net loss of $662 million versus a loss of $253 million in 2020. For Q4 2021, a net loss of $191 million was reported versus a loss of $54 million in Q4 2020.
There are two additional negative factors for Opendoor. They are the fact that Opendoor is burning cash and that shareholders have been diluted in the past year, with total shares outstanding growing by 7.4%. In 2021, Opendoor reported a free cash flow of negative $5.81 billion, which is massive compared to its revenues of $8 billion.
This one-month rally gives investors a nice opportunity to sell OPEN stock now. The fundamentals are weak. Selling OPEN stock at higher prices and widening net losses makes perfect sense.
On the date of publication, Stavros Georgiadis, CFA 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.