Is Now a Good Time to Buy Opendoor Technologies? Online real estate marketplace operator Opendoor Technologies (OPEN) has been expanding its market reach, but its top line declined in the first quart...

Online real estate marketplace operator Opendoor Technologies (OPEN) has been expanding its market reach, but its top line declined in the first quarter and the company is incurring losses. But can the stock gain in the near term by capitalizing on the red-hot housing market? Let's find out.

Online homes marketplace Opendoor Technologies Inc. (OPEN) made its stock market debut on December 21, 2020 through the SPAC route by merging with Social Capital Hedosophia Holdings Corp. II. However, the stock has generated tepid interest among investors so far due to concerns surrounding an anticipated tightening of regulations related to SPACs.

In April, the SEC warned the market about accounting rule clarifications regarding SPACs, and NYSE President Stacey Cunningham said last month that SPACs can expect increased regulation and calls for transparency amid heightened scrutiny from the SEC.

The housing market has been booming with rising demand amid low interest rates. This has allowed OPEN to expand its market reach. The company now has a presence in more than 30 markets. However, the stock has retreated nearly 41% over the past six months and 11.5% over the past month to close yesterday's trading session at $15.81. This, along with OPEN's continued losses, make its near-term prospects bleak.

Here's what we think could influence OPEN's performance in the near term:

Weak Financials

For its fiscal first quarter, ended March 31, 2021, OPEN's top line declined 40.5% year-over-year to $747.27 million. The company's total operating expenses for the quarter increased 169% from the same period last year to $341.83 billion. Its loss from operations increased 579.5% year-over-year to $244.70 million. OPEN's net loss in the first quarter came in at $270.44 million, up 334.8% year-over-year. Its loss per share for the quarter came in at $0.48 compared to $0.74 in the prior-year period.

Selling Shares to Fund Market Expansion

On February 4, 2021, OPEN announced the upsizing and pricing of its follow-on public offering of its common stock for gross proceeds of roughly $770 million. The company is expected to use the proceeds to expand into new markets, and for working capital and general corporate purposes. However, this is expected to lead to share dilution.

Poor Profitability

In terms of its trailing-12-month gross profit margin, OPEN's 10.98% is 83.1% lower than the 65.12% industry average. Its trailing-12-month EBITDA margin is negative compared to the 54.76% industry average. The stock's trailing-12-month ROCE and ROTA are also negative versus the 2.83% and 1.55% respective industry averages.

POWR Ratings Reflect Bleak Prospects

OPEN has an overall F rating, which equates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. OPEN has a D grade for Growth, which is consistent with analysts' expectations that its EPS will remain negative in 2021 and 2022.

The stock has a D grade for Value. This is justified given its 3.02x forward Price-to-Book, which is 41.8% higher than the 2.13x industry average.

OPEN has a D grade for Quality also, which is in sync with its lower-than-industry profitability ratios. It has an F grade for Stability.

In the Internet – Services industry, OPEN is ranked last out of the 43 stocks. Click here to see OPEN's ratings for Sentiment and Momentum also.

Better than OPEN: click here to access several top-rated stocks in the same industry.

Bottom Line

Even though the housing market is now booming, analysts expect OPEN's EPS to remain negative in 2021 and 2022. This, along with the consequences of an expected increase in regulations for SPACs, could cause the stock to experience further declines. So, we think it's wise to avoid the stock now.

OPEN shares rose $0.25 (+1.58%) in premarket trading Friday. Year-to-date, OPEN has declined -29.17%, versus a 16.46% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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