Why Opendoor Technologies Jumped 245% in July

Key Points

• Some investors believe that Opendoor could be the next Carvana.

• Volume soared as meme stock traders piled in.

• A weak jobs report gave the stock a boost to start August.

• 10 stocks we like better than Opendoor Technologies ›

Shares of Opendoor Technologies (NASDAQ: OPEN) skyrocketed last month as an argument that the stock would be the next Carvana caught fire on social media platforms like Reddit and X (formerly Twitter), driving a meme stock surge.

Trading volume in the stock soared, squeezing shorts, and options purchases also seemed to create a gamma squeeze, which happens when market makers are forced to buy stocks to secure call options that they sell.

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The fervor peaked on July 21 when the stock crashed after trading was halted and some investors mistook a company called Open Doors Partners, which filed to sell stock, for Opendoor Technologies. By the end of the month, Opendoor had finished with a gain of 245%, according to S&P Global Market Intelligence.

The chart below shows Opendoor's wild month.

OPEN data by YCharts

Can Opendoor keep climbing?

Opendoor entered the public markets as a special purpose acquisition company (SPAC) in late 2020 and initially soared before crashing as rising interest rates crushed its home-flipping business model, which relies on collecting service fees on transactions and earning a profit on home sales.

By June, the stock was trading at less than $1 a share, and the company was considering a reverse stock split to avoid being delisted by the Nasdaq stock exchange.

The meme stock interest seems to have saved it from that for now. The core of the meme stock argument is that lower mortgage rates will lead the company to profitability once again. However, that isn't guaranteed, especially if a weakening economy is what drives mortgage rates lower. The pandemic-era housing market, with its rock-bottom mortgage rates and soaring demand for homes, is unlikely to be repeated.

Image source: Getty Images.

What's next for Opendoor

Following a weaker-than-expected jobs report on Friday, Opendoor has started a new rally, as investors are hopeful that the report will lead the Federal Reserve to cut interest rates in September.

Opendoor is set to report second-quarter results after the bell, though expectations are muted. The company is expected to report flat revenue at $1.5 billion and an adjusted loss per share of $0.02, narrowed from $0.04.

However, the company's outlook and management's commentary could be more important than the actual results. If management can give investors what they want, the stock could soar again. Alternatively, another weak round of numbers without any positive outlook could sink the stock, causing traders who bought shares in the last few weeks to bail.

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Jeremy Bowman has positions in Carvana. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.