Is Opendoor Technologies the Next Carvana?

Is Opendoor About to Have Its ‘Carvana Moment’?

Opendoor Technologies Company Overview

Founded a little more than a decade ago in San Francisco, California, Zacks Rank #3 (Hold) stock Opendoor Technologies (OPEN) is a real estate development company that makes instant cash offers (known as an ‘iBuyer’) mainly in the residential real estate market. Opendoor leverages a technology-driven platform to find and make offers, purchasing the real estate directly from sellers. Opendoor then makes all the necessary upgrades, renovations, and repairs to relist and sell the real estate for a higher price (the average hold time is ~90 days). In addition to its real estate investment services, the company launched a mortgage services and home loan business. OPEN, which merged with Chamath Palihapitiya’s Social Capital Hedosophia Holdings Corp II in 2020, also has a partnership with Redfin. This leading technology-driven real estate brokerage website competes with Zillow Group (ZG).

OPEN: Shades of 2023 Carvana?

Eric Jackson, founder of EMJ Capital, helped drum up interest in OPEN in July by comparing it to online car website Caravana (CVNA). The comparison resonates with me because the two companies share several similarities, including:

·       Beaten-down, Turnaround Plays: Carvana’s multi-bag stock move started with a company on the brink of collapse. However, several bullish catalysts began to emerge. For OPEN, the company will benefit from lower interest rates, which will likely wake up a sleepy real estate market (betting website PolyMarket gives a 71% chance of an interest rate cut in September).

·       Digitizing Legacy Markets: Carvana allowsusers to buy or sell cars online, making a normally tedious process much more efficient and enjoyable. Opendoor is doing a similar model for the real estate market.

·       Meme Stock Cult Following: Similar to CVNA, OPEN is a favorite among retail investors on the wildly popular Reddit (RDDT) message board ‘Wall Street Bets.’ The surge in Robinhood (HOOD) stock illustrates that retail investors are again interested in trading, potentially suggesting sustained interest in OPEN shares

OPEN Regains Nasdaq Compliance

OPEN shares rose Monday and broke out of a bull flag pattern on heavy volume (accumulation) after the company announced that it had successfully regained compliance with the Nasdaq’s minimum bid price requirement, sustaining a closing bid price of at least $1.00 for 12 consecutive trading sessions.

OPEN: Bullish Call Flow & Heavy Short Interest Could Provide Upside Fuel

OPEN shares have experienced heavy buying in far out-of-the-money call options over the past few months – a bullish sign. Additionally, 40 million shares or ~38% of the OPEN share float are short. Should the stock keep rising, shorts will be forced to cover, potentially triggering a GameStop (GME)-Esque short squeeze.

Bottom Line

Opendoor Technologies presents a compelling, albeit speculative investment case. The company may benefit from lower interest rates, the continued digitization of the real estate market, and high short interest.

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This article originally published on Zacks Investment Research (zacks.com).

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