Should you buy Opendoor stock?

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Opendoor Technologies, is a real estate technology company that flips homes based on its own ibuying model. It also has a new marketplace service to connect sellers and buyers.

Opendoor stock has been hammered this year, falling 91% and taking the market cap to just 831 million dollars. With 1.3 billion in cash and more than 4 billion in debt the enterprise value is roughly 5.5 billion.

Revenue over the last 12 months was 16.5 billion which means the company is valued at ⅓ of revenue. But the company has reported large losses from its ibuying model and has had to write down the value of some of its properties.

This led to a huge 928 million loss in Q3 and takes the trailing twelve month loss to 1.14 billion. Opendoor bonds currently trade around 57 suggesting a good chance of bankruptcy.

Unsurprisingly, this has led to big changes at Opendoor. The company has laid off 18% of its staff and a shakeup in management means CEO Eric Wu has been replaced by previous CFO Carrie Wheeler. The company has also initiated a new marketplace service,to offset the losses of its ibuying business.

With a current short interest of 12% there are still traders out there betting that Opendoor stock has further to fall.

However, with 1.3 billion in cash and 6 billion of inventory there’s an argument that Opendoor is trading below its liquidation value. In other words, if Opendoor were to sell all its properties and pay off all its debt, the value might be more than the current market value suggests.

But closer inspection suggests that may not be the case. Opendoor finances its properties with variable interest rate debt and also holds a billion in convertible bonds. Property markets are notoriously illiquid and there’s no guarantee that Opendoor’s assets would fetch market price.

There’s a chance that Opendoor survives this year. But even if it does, there’s no evidence that its ibuying business model has any merit. Artificial intelligence models may be able to flip thousands of homes for a profit in a boom period but that doesn't mean it can do so during harder economic times.

For those reasons I give this stock a neutral rating. It looks too risky to buy but too cheap to short. But these are my own personal opinions not financial advice.