Like bargains? Most people do, particularly when the bargain in question is a stock. Why pay more when paying less gives you more bang for your investment buck?
Growth investors who don't mind taking on more risk in exchange for more potential reward should take a look at Opendoor Technologies(NASDAQ: OPEN). Shares are down 95% from their all-time high, and while that decline occurred for understandable reasons, the sellers have arguably overshot their target.
If the stock looks appealing to you, you'll want to take your shot sooner than later, as a sweeping shift in the underlying sentiment about it could be brewing.
The Opendoor Technologies backstory
Never heard of Opendoor? Don't sweat it. Plenty of people haven't. While its home-selling/homebuying platform has its fans, bigger players like Zillow(NASDAQ: Z) and RedFin(NASDAQ: RDFN) have captured more investors' attention just as their websites have attracted more real estate buyers and sellers.
Don't be dissuaded by its smaller size and lesser notoriety, though. An investment's potential upside is relative, and besides, Opendoor brings something different to the table. Whereas RedFin and Zillow have both discontinued similar "iBuying" programs, Opendoor Technologies continues to outright purchase homes from sellers who just want to close those sales as quickly as possible. Of course, sellers can also list their homes at Opendoor.com for other would-be buyers to browse them.
The stock's wild history has been rather predictable too.
This company went public through a reverse merger with a special purpose acquisition company (SPAC) in the latter part of pandemic-riddled 2020, and it benefited from the high investor interest in anything promising around that time. Shares quickly rose from the low $30s to their ultimate, early 2021 peak of $39.24 as real estate demand soared thanks to rock-bottom interest rates and consumers who were stuck at home with a bit of stimulus money and plenty of free time to house-hunt.
But for Opendoor -- like many other companies that went public around that time -- the market's excessive optimism eventually gave way to reality. The red-hot real estate market that had prevailed wasn't built to last. Investors also came to recognize that the online real estate listing arena is extremely competitive, and dominated by the aforementioned RedFin and Zillow.
End result? Opendoor's stock price is now down by about 95% from its 2021 high, and after some ups and downs in the past two years, is back within sight of the all-time low below $1 a share it hit in late 2022.
However, just as investors got too aggressively bullish about the stock back in 2020, they've now overshot the mark in their bearishness. That translates into an opportunity for new buyers today.
The bullish case for Opendoor stock
Don't misread the message -- there's still plenty of risk here. There's also a distinct lack of profits that could linger into 2027, at least.
There's also progress, however, and hope on the horizon. That may be enough to rekindle bullish interest in Opendoor stock sooner than later.
Chief among the reasons for hope about this business is that interest rates are headed lower.
After the Fed's anti-inflation efforts propelled market interest rates upward between early 2022 and early 2023 -- crimping demand for mortgage loans -- they're starting to peel back again. The Federal Reserve cut the benchmark federal funds rate by 50 basis points (0.5 percentage points) last month, and told the market that it expected that it would be appropriate for it to continue ratcheting rates lower (albeit at a slower pace) through 2026. Even with just that first interest rate cut in the books, though, the Mortgage Bankers Association reported a 20% uptick in demand for new loans the following week.
That knee-jerk increase in applications has since waned; most would-be buyers may be waiting for even lower rates now that there's good reason to believe they're on the way. It's also arguable that the overall national numbers for homebuying and refinancing have been dragged down due to the impacts of Hurricanes Helene and Milton.
Nevertheless, at least this aspect of the real estate market is on the mend.
Bolstering the bullish case is the simple fact that the U.S. housing shortage remains considerable, and that will only be exacerbated by Milton and Helene. While the estimates vary from one source to the next, they collectively contend that the United States needs between 1.5 million and 4.5 million more homes than it currently has. For perspective, the country's homebuilding industry is only constructing an average of about 1.2 million new houses per year.
The impending growth of the real estate market will be a boon for all the players in Opendoor's niche -- but the smaller company has the most to gain from this reignited growth.
The kicker: Just within the past month, the company named a new chief financial officer as well as a new chief technology and product officer, both of whom are coming to it from impressive and relevant tech companies -- Alphabet and LegalZoom, to be specific. Also less than a month ago, Opendoor named former Fannie Mae President David Benson to the board of directors. When a business starts bringing in that much talent from outside, it often signals a new growth initiative is in the works.
Be smart about an investment on Opendoor
Opendoor stock will not be a good fit for everyone's portfolio. It isn't suited to being a core holding, either. For your portfolio's foundational stocks, you'd be well advised to pick better-seasoned companies in more established industries.
If you've got a bit of speculative money to play with, though, the above-average risk this ticker carries comes with a good deal of upside potential. My advice would be to manage this risk by keeping any position you open in Opendoor smaller than your normal stock buys. Then watch it closely, and be prepared to accept plenty of continued volatility.
Don’t miss this second chance at a potentially lucrative opportunity
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*Stock Advisor returns as of October 7, 2024
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Opendoor Technologies, Redfin, and Zillow Group. The Motley Fool recommends the following options: short November 2024 $13 calls on Redfin. The Motley Fool has a disclosure policy.
