OPEN Stock may very well be ready to jump into the teens

  • Opendoor Technologies grew 25% last week
  • It looks like investors are buying his growth story
  • OPEN action is a dynamic game worth considering

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Open door technologies (NASDAQ:OPEN) looked dead after delivering a mix Q4 2021 results February 25. OPEN stock fell 30% on the news. Then it lost some more, hitting a 52-week low of $6.16 on March 8.

However, since hitting $6, the home buying and selling platform has skyrocketed.

As I write this, OPEN is trading at around $9.

If you are an aggressive investor and ignore its lack of profits, OPEN appears to be a dynamic game worth considering. However, I wouldn’t buy it. I wrote the same thing in my Opendoor article in February, but that was before it released its fourth quarter results.

i still believe Zillow (NASDAQ:Z) is the best long-term buy. That said, Opendoor is sitting on a pretty good opportunity if it can execute its game plan.

Here’s why.

OPEN Open door technologies $9.03

OPEN stock is the best option

In my February article, I suggested that Solutions offers (NYSE:OPAD) might be a better buy than Opendoor if you’re into iBuying. That’s because it was doing a better job of buying and selling homes than Opendoor. Plus, it seemed like a more financially sound company.

However, the one thing it doesn’t have is Opendoor’s scale.

In 2021, the company had $8 billion revenue from the sale of 21,725 ​​homes. In comparison, Offerpad generated $2.1 billion to sell 6,373 homes in the last fiscal year.

There’s no doubt that Opendoor is building the scale needed to buy, remodel, and sell homes profitably over the long term. In some ways, iBuying is the real estate version of grocery shopping. Just keep turning houses until the low margins pay for themselves.

Thus, Opendoor’s revenue was 4x that of Offerpad in 2021.

Eric Wu, co-founder and CEO of Opendoor, said the company was well ahead of its financial projections and grew revenue by more than 200% between 2020 and 2021.

Opendoor is now present in 44 markets. So if you want to sell your house fast and live in one of these markets, these are the ones you will use. It’s so simple.

Once it becomes profitable, the sky is the limit for the OPEN stock.

How long before profitability

Now that I’ve looked at its Q4 2021 results, its path to profitability may not be as far off as I originally thought.

In 2021, Opendoor lost $116 million on an adjusted basis, down 34% from 2020. Its contribution margin – defined as contribution profit divided by revenue – increased by 220 basis points in 2021. Including interest, its contribution margin increased by 280 basis points to 6.0%.

Two things must happen to achieve GAAP profitability. First, he needs to get a double-digit gross profit margin. It ended 2021 with a gross margin of 9.1%, 60 basis points higher than 2020 and 270 basis points higher than 2019. Its contribution margin was incredibly close to 9.6% on a fitted base.

Second, it must maintain the line on operating expenses – $1.3 billion in 2021 or 16.3% of revenue – and increase its gross profit margin to 12% in 2022; it would take about $10.82 billion in revenue [$1.3 billion divided by 12%] to reach the break-even point.

Considering its revenue grew 211% in 2021, it would take a significant slowdown in its growth to miss $10.82 billion in 2022.

I’m not saying it will hit a 12% gross margin in 2022, but if it does, it has a very good chance of making money.

The year to come

The biggest risk Opendoor faces in 2022 is a national recession. As interest rates rise and inflation continues to hurt Americans’ standard of living, a recession would dramatically slow the housing market, reducing the amount of money it can earn from each house it buys. , renovates and resells.

While a recession is unlikely, if it did, Opendoor’s path to profitability would certainly take longer. So, naturally, that would hurt Opendoor’s stock price.

Early March, InvestorPlace Luke Lango discussed the irrational selling this happened after Opendoor released its fourth quarter 2021 results. It unequivocally stated that buying down could produce a 20x return on your money over the next few years.

Assuming you’re one of the lucky ones to have bought Opendoor below $7 after earnings, my colleague suggests that $140 isn’t out of reach by 2030. That would give it a market cap of 102.4 billions of dollars.

My only concern with Lango’s the estimate is the 300,000 homes sold by Opendoor in 2030. That’s a compound annual growth rate of 33.9% over the next nine years. Based on the 2021 growth rate of 119%, it’s doable, but who knows what will happen in 2023 and beyond.

If you’re an aggressive investor, buying under $10 doesn’t seem bad given the momentum in Opendoor stocks.

As of the date of publication, Will Ashworth had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to Publication guidelines.

Will Ashworth has been writing about investing full-time since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and many others in the US and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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