Why Opendoor Stock Fell 14% in January

Opendoor Technologies (NASDAQ: OPEN) stock fell 14% in January according to data provided by S&P Global Market Intelligence. The real estate market has stayed stubbornly challenging, and Opendoor isn't likely to demonstrate strong progress until the market changes.

A great idea for a different time

Opendoor is a real estate technology stock. It offers a number of digital services including an online marketplace, buying, and data analysis. It's the future of real estate, but it hasn't had the chance to prove itself over the past few years, since the real estate sector has been crushed by high interest rates.

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Management is focusing on whatever it can to stay afloat and run its business right now, such as cutting expenses, but there are only so many homes it can buy and resell. There was progress in the third quarter, at least year over year. But it's still in decline from its highs when interest rates were at zero.

Revenue increased 41% year over year in the quarter to $1.4 billion and it sold 3,615 homes, 35% higher year over year. It ended the quarter with an inventory balance of 6,288 homes, or $2.1 billion in value, a 64% increase from the previous year. However, those numbers were all below the 2022 numbers, which were $3.4 billion, 8,520 homes sold, and an inventory balance of 16,873 homes, or $6.1 billion.

Adjusted earnings before interest, taxes, deprecation, and amortization (EBITDA) and net loss were both negative in the most recent quarter, but were both improved from the prior year.

Opendoor stock had started to make a rebound when interest rates were cut in September and mortgage rates fell. But they went back up quickly, and the Federal Reserve is being very careful about further cuts. The median 30-year mortgage rate dropped 0.1 percentage points in December, and homes sold increased 11.8% year over year according to Redfin data. January figures haven't been released yet, but if they do show significant progress, it should impact Opendoor's business, and stock, positively.

Is this a bargain or a value trap?

Opendoor stock is trading for slightly more than $1 right now, which implies that the market has lost confidence in this stock. Its trailing-12-month price-to-sale ratio is a dirt cheap 0.2.

Opendoor could bounce back big, but it's quite risky right now for the average investor.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool recommends Opendoor Technologies and Redfin and recommends the following options: short February 2025 $10 calls on Redfin. The Motley Fool has a disclosure policy.