Opendoor: The Fed Pivot May Jumpstart Its Prospects

Core Insights - The article discusses the potential recovery of Opendoor Technologies (OPEN) amidst improving market conditions and financial metrics, suggesting that the stock may be undervalued at current levels [5][15][24] Financial Performance - OPEN reported an average inventory price of $330K per home in FQ1'24, reflecting a decrease of 1$388K in FQ2'22 [4] - The company is expected to achieve contribution profit margins of 5.5% in FQ224, an increase of 0.7 points QoQ and 10.1 YoY, while EBITDA margins are projected at -2%, improving by 2.2 points QoQ and 6.5 YoY [10] - OPEN's gross margins improved to 9.7%, up 1.4 points QoQ and 4.3 YoY, with a contribution margin of 4.8% in FQ124, also up 1.4 points QoQ and 12.5 YoY [18] Market Conditions - The U.S. core CPI moderated to 3.3% by June 2024, indicating a shift closer to pre-pandemic averages, which is beneficial for OPEN as it may lead to increased consumer confidence and home buying activity [3][17] - The 30Y Fixed Rate Mortgage declined to 6.89% by July 2024, down from a peak of 7.79% in October 2023, which could stimulate demand in the housing market [17] Valuation Metrics - OPEN is currently valued at a forward EV/Revenues of 0.46x and a forward Price/Sales of 0.23x, significantly lower than peers like Redfin and Zillow, suggesting it is undervalued [21][22] - The consensus forward estimates indicate promising growth, with projected top line growth at a CAGR of 12.7% through FY2026 [21] Investor Sentiment - Despite a recent pullback of 38.1%, market sentiment is improving, driven by cooling inflation and potential Federal Reserve rate cuts, which may enhance OPEN's stock performance [15][14] - The stock is considered suitable for investors with higher risk tolerance, as it may remain volatile in the intermediate term due to cyclical nature of the residential market [14][15]