1 Growth Stock Down 95% to Buy Right Now

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1 Growth Stock Down 95% to Buy Right Now

This beaten-down innovator is tweaking its marketing strategy and staging a comeback.

Opendoor Technologies (OPEN 11.39%) started its publicly traded life on a high note. Shares of the cloud-based residential real estate trader more than tripled in its first eight months on the market.

But the joy didn’t last long. Opendoor’s stock is down 94.6% from the peak in February 2021.

The stock isn’t an obvious slam dunk today, but I do see signs of better days ahead. Opendoor deserves your consideration if you’re interested in a robust turnaround effort. A small, speculatory investment today could yield impressive returns in the long run.

The story so far

Opendoor has been around since 2014, starting with local home reseller services in Phoenix and Dallas. The company wants to disrupt the massive homebuying market by offering a simple alternative — skip the traditional process of listing, fixing, and showing your home and just sell it to Opendoor in a few clicks instead. The company pays cash up front, takes care of the cleanup and necessary fixes, then finds a new owner.

After six years of accelerating expansion, the company decided to go nationwide and join the stock market in December 2020. Investors embraced the seller-friendly platform at first, despite the economic pressures of the COVID-19 pandemic. But the soaring real estate market stalled in 2021, collapsed in 2022, and settled at a historically low level of existing home sales since then.

The timing of that downtrend hit Opendoor like a freight train. Trailing revenue peaked at $16.5 billion in the fall of 2022. After seven straight quarters of declining sales, that metric has retreated to $4.5 billion.

A snapshot of Opendoor’s recovery

The housing market is still tough, but Opendoor is starting to turn its financial worries around.

Sales are still slowing down, but the year-over-year drops are shrinking in the last two reports. Earnings before interest, taxes, depreciation, and amortization (EBITDA) are hovering just below the break-even line. If Opendoor can follow through on the top-line trend, sales should start rising again and positive profits would follow.

The number of home sales may be low, but average prices continue to climb. Against this mixed market backdrop, Opendoor has refined its marketing message. The previous focus on direct response campaigns has shifted toward brand awareness. People have seen online home-selling services before from larger rivals such as Zillow Group and Redfin, and potential customers often gloss over Opendoor’s detailed service descriptions to go with a more familiar brand. The heavier brand awareness push is paying off, as seen in the company’s improving financial trends.

The company is also adding new services. The straight-up cash offers are now paired with the option to list the home on the traditional multiple listing service (MLS) for 30 days. That option has proven attractive with home sellers hoping for a larger payout, and a successful listing scores a commission for Opendoor without the financial burden of owning that property for a while.

This service is new, but Opendoor has seen a 10% boost to its net promoter score (NPS) since launching it.

Opendoor is clearing a path forward

Opendoor is finding better ways to run its business in this challenging housing market. Meanwhile, both Zillow and Redfin have closed their competing iBuyer services to refocus on MLS listings. Their exit leaves Opendoor with fewer competitors and an easier path to building its brand.

The road ahead is full of potholes, and I can’t guarantee that Opendoor will zoom past them without breaking an axle. But I like the company’s chances of succeeding in a less crowded industry, its financial trends are starting to point in a bullish direction, and the stock is priced for absolute disaster. That’s three good reasons to give Opendoor’s stock a chance.

If nothing else, former rivals like Redfin and Zillow might decide to get back in the iBuyer market by acquisition, thus painting buyout targets on this stock. So you definitely shouldn’t bet the farm and all the chickens on this stock, but Opendoor is worth a modest investment today. That bet could pay huge dividends if this turns out to be the low point of Opendoor’s potentially disruptive adventures.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Opendoor Technologies, Redfin, and Zillow Group. The Motley Fool recommends the following options: short August 2024 $11 calls on Redfin. The Motley Fool has a disclosure policy.

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