1 Reason Opendoor Technologies' Recent Move Is a Major Red Flag

Opendoor Technologies (NASDAQ: OPEN) is still the meme stock of the moment. The real estate tech disruptor, which uses a combination of a digital platform and an iBuying model to change the status quo in real estate, has been under enormous pressure since interest rates were raised a few years ago.

So far, interest rate cuts haven't been felt acutely in home sales, and results continue to be disappointing.

But there was more to the story in the company's earnings report last week, and one specific action that looks like a glaring red flag.

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It's all about the business

The third-quarter results were underwhelming, with another decrease in revenue, plus slides in gross profit, gross margin, and net income. However, the stock has been gaining as investors gain confidence in new CEO Kaz Nejatian's clear vision and deliberate strategy. He definitely deserves accolades for creating accountability measures to keep it on track.

However, he also seemed to get a bit sidetracked in terms of his responsibilities. He announced the issuing of warrants for shareholders to be able to get new shares at specific prices, should Opendoor stock reach them. He focused his comments as a retort to investors who have been shorting the stock, saying: "It gives me just a bit of joy that this will totally ruin the night of a few short sellers."

While I like the commitment to shareholders here, I worry that management is taking this approach. The appropriate way to deal with high short interest is to make the business so great that retail investors see the value in buying it today, not to view short sellers as the enemy.

Nejatian did lay out a plan with three specific and measurable objectives: Scale acquisitions, improve unit economic and resale velocity, and build operating leverage. Investors can hope that he focuses on the business and impresses shareholders that way.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.