Opendoor Technologies Inc. (OPEN) runs a digital platform in the United States that provides residential real estate services. The company allows customers to buy and sell homes online and provide title insurance and escrow services.

Last month, Zillow, Inc. (ZG) and OPEN announced a multi-year partnership to transform the way people begin their moves. The collaboration will enable Zillow platform home sellers to request an Opendoor offer to sell their homes seamlessly.

However, elevated inflation and the rising interest rates to tame it have significantly impacted the housing market. Homebuyers have seen a significant loss in purchasing power this year, in addition to dealing with high prices, due to rising mortgage rates, which are now twice as high as they were in January 2022. This could negatively impact OPEN’s near-term prospects.

The company’s shares have declined 74.6% over the past year and 70.6% year-to-date to close its last trading session at $4.30. In addition, the stock is currently trading 83% below its 52-week high of $25.32, which it hit on November 01, 2021.

Here's what could shape OPEN's performance in the near term:

Recent Settlement

OPEN recently reached an agreement with the Federal Trade Commission in which it agreed to pay the FTC $62 million and make corporate-wide changes to its practices. This resulted from an FTC investigation into OPEN's practice of promising consumers that they would make more money selling their houses to the company than they would on the traditional market.

OPEN stated, “While we strongly disagree with the FTC’s allegations, our decision to settle with the Commission will allow us to resolve the matter and focus on helping consumers buy, sell and move with simplicity, certainty and speed.”

Negative Profit Margins

OPEN's trailing-12-month CAPEX/Sales multiple of 0.27% is 92.3% lower than the industry average of 3.6%. Also, its trailing-12-month ROA, net income margin, and ROE are negative 2.7%, 1.8%, and 11.5%, respectively. Moreover, its trailing-12-month negative gross profit margin of 9.7% compares to the industry average of 68.8%.

Poor Earnings Estimates

Street expects its EPS to decline 444.4% in the current quarter ending September 2022 and 48.3% in the next quarter ending December 2022. Also, its EPS is expected to remain negative in the current and next years. In addition, OPEN failed to surpass the consensus EPS estimates in two of the trailing four quarters.

POWR Ratings Reflect Bleak Outlook

OPEN has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. OPEN has an F grade for Stability and Sentiment. The stock beta of 1.27 is in sync with the Stability grade. In addition, analysts’ weak earnings estimates are consistent with the Sentiment grade.

Of the 42 stocks in the F-rated Real Estate Services industry, OPEN is ranked #40.

Beyond what I've stated above, you can view OPEN ratings for Growth, Quality, Momentum, and Value here.

Bottom Line

The new multi-year partnership with Zillow could be beneficial for OPEN. However, the company's recent agreement to pay a large sum to FTC could strain its finances. In addition, rising interest rates and inflation is expected to keep the housing market under pressure. Given its weak earnings estimates and negative profit margins, we think the stock is best avoided now.

How Does Opendoor Technologies Inc. (OPEN) Stack Up Against its Peers?

While OPEN has an overall F rating, one might want to consider its industry peers, Marcus & Millichap Inc. (MMI), Comstock Holding Companies Inc. (CHCI), and Colliers International Group Inc. (CIGI), which have an overall B (Buy) rating.

OPEN shares were trading at $4.43 per share on Thursday morning, up $0.13 (+3.02%). Year-to-date, OPEN has declined -69.68%, versus a -16.20% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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