It has been a sizzling start to July for real estate “iBuyer” Opendoor Technologies (NASDAQ:OPEN). But before investors consider purchasing OPEN stock, they’ll need to consider a few important factors.
Inflation. At-risk consumers. Spiking interest rates. A multi-year bull run to all-time-highs in housing. A stock market led by tech companies hitting new year-to-date bear market lows. If OPEN stock appeared to have a house of cards stacked against it in June, it did. And shares reacted by tumbling nearly 35% to all-time-lows.
Yet two days into the second half of 2022 and OPEN stock buyers have been pushing through June’s gloom. Shares have quickly countered with gains north of 16% in just two trading sessions. Still, more savvy investors considering Opendoor may want to put a fence of sorts around that OPEN stock ownership.
OPEN Stock’s Welcome Mat for Bulls
There’s no doubt Opendoor Technology sounds like it has what it takes to be the next big thing. Through AI-enabled technology the company’s mission is to disrupt a multi-trillion-dollar housing market that’s archaic, painfully time consuming and has too many middlemen stealing a bite from most consumer’s single largest transaction.
No more. Through OPEN’s digital iBuying platform, homes can be bought and sold between just two parties faster, more easily and more cheaply.
And in OPEN’s most recent quarter reported in early May, jaw-dropping items such as Opendoor’s Q1 revenue growth of 590%, a surprise and profitable earnings beat and other key metrics appeared to lay the foundation for an OPEN stock.
Still, it’s been a tough to get into OPEN stock recently.
Bulls Are Knocking on OPEN Stock’s Door
Source: Charts by TradingView
Today shares of Opendoor are off 32% from stock levels immediately in front of the earnings release. Moreover, those losses have only reinforced OPEN’s year-to-date bear market to about 62.50%. It could get worse too.
Some fear Opendoor’s business model that has only now just turned barely profitable under one of the strongest housing markets ever. They also fear that it remains cash flow negative and could be in much worse shape in a weaker housing market.
Arguably, slim margins aided by aggressive flipping of high-priced properties could deteriorate rapidly. Furthermore, OPEN’s leveraged iBuying strategy has the company holding $4.66 billion in home inventory as of the end of the last quarter. This could also prove a significant Achilles heel.
But ultimately, there’s more to like about OPEN stock as a buy than not.
How to Approach OPEN Stock
A few things make Opendoor stock appealing now:
- Opendoor shares have lost an excess of 85% since 2021’s peak stock price.
- It now has a lower mid-cap valuation of about $3 billion.
- A solid-looking weekly bullishly divergent stochastics in conjunction with 2022’s unforgiving stock market also bolster its promise now.
The illustrated price chart of OPEN hints that a rally won’t encounter more significant resistance until a pair of long-term trendlines from around $10 to $11 come into play. Meanwhile, with Opendoor’s all-time-low just $1.17 beneath Tuesday’s closing price of $5.47, the risk profile supports OPEN stock buyers by a ratio north of 4-to-1.
Alternatively, rather than just buy shares with a mindful stop-loss, a partial but practically hedged options fence around OPEN stock may allow for more sound ownership.
One combination of this type which fits well with current pattern risk is buying the Aug $5/$4 bear put spread and selling an Aug $7 call for a small net credit against long OPEN stock.
On the date of publication, Chris Tyler 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.