Opendoor Technologies Inc. (OPEN) in San Francisco is a digital real estate platform. The company made its stock market debut through a reverse merger with institutional investor Chamath Palihapitiya’s Social Capital Hedosophia Holdings II on December 21, 2020. Palihapitiya labeled this merger as his next “10x idea,” indicating the initial investment is expected to generate 10x returns.

The merged company was valued at $4.8 billion. Regarding this, OPEN Founder Eric Wu said, “This is one of many milestones towards our mission and will help us accelerate the path towards building the digital one-stop-shop to move.” It was ranked #35 on CNBC’s 2020 Disruptor 50 list.

However, shares of OPEN have declined 52.5% in price since its listing to close yesterday’s trading session at $13.30. The stock has slumped 38.2% over the past month and 11.2% over the past five days.

Here is what could shape OPEN’s performance in the near term:

Substantial Debt Burden

OPEN raised $850 million through an upsized senior notes offering in August. It used approximately $103.30 million of the proceeds to enter privately negotiated capped call transactions with option counterparties. The remaining funds raised were used to finance the company’s general corporate expenses.

OPEN’s trailing-12-month total debt stands at $6.44 billion. However, the company’s trailing-12-month net operating cash flow and levered free cash flow are negative $6.26 billion and $6.34 billion, respectively, raising concerns regarding the company’s debt and interest repayment. Its debt/free cash flow ratio is negative 0.37.

Dilution of Shareholder’s Equity

In July, OPEN redeemed 13,799,947 of outstanding warrants. The company raised $22.40 million in total cash proceeds. However, due to this warrant redemption, the number of publicly-traded OPEN shares increased substantially, indicating lower a ROE.

And in February, OPEN announced a follow-on public offering of 28.54 million shares, priced at $27 per share. The company raised $770 million in gross proceeds from this secondary public offering. However, due to such large equity financing, OPEN’s ROE and EPS have declined substantially.

Unfavorable POWR Ratings

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

OPEN has an F grade for Quality and a D for Value. The company’s negative 12.56% net income margin and negative 36.82% ROE justify the Quality grade. In addition, OPEN’s negative forward non-GAAP Price/Earnings multiple is in sync with the Value grade.

Of the 43 stocks in the D-rated Real Estate Services industry, OPEN is ranked #39.

In addition to the grades I have highlighted, view OPEN’s ratings for Stability, Sentiment, Momentum, and Growth here.

Bottom Line

The housing market is still piping hot, with home prices nearing all-time highs. According to a Redfin report, median home sale price rose 14% year-over-year to $359,750 during the four-week period ended December 12. Despite the industry tailwinds, OPEN is yet to break even. In fact, analysts expect the company’s EPS to remain negative until at least next year. Thus, the stock is best avoided now.

How Does Opendoor Technologies Inc. (OPEN) Stack Up Against its Peers?

While OPEN has a D rating in our proprietary rating system, one might want to consider looking at its industry peers, Newmark Group, Inc. (NMRK), Jones Lang LaSalle Incorporated (JLL), and The RMR Group Inc. (RMR), which have a B (Buy) rating.

Note that NMRK is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.

OPEN shares were trading at $14.10 per share on Friday afternoon, up $0.80 (+6.02%). Year-to-date, OPEN has declined -37.97%, versus a 25.12% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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