The Opendoor Stock had another great day, jumping by 14% on Friday. This real estate platform is continuing one of Wall Street’s most popular rallies.
After a rollercoaster ride that has left retail traders, analysts, and hedge funds scratching their head, the stock now is flirting with its 52-week highs.
Why is the stock market rallying?
Opendoor’s stock has risen over 300% in the past year. This puts it in meme stock territory.
After hedge fund manager Eric Jackson made a public disclosure of a large position, the buzz on Reddit and twitter has become more serious.
Unexpectedly, the latest rally was boosted by bad economic news. A weak jobs report in August made Fed rate reductions more likely. Lower interest rates also act as rocket fuel to housing stocks.
Mortgage rates dropping means more people are able to afford homes. Platforms like Opendoor, which facilitate home sales, suddenly become more appealing.
If you strip out the meme-stock hysteria, rate cuts speculation and other nonsense that’s been going on in recent weeks, there is a real business transformation taking place.
Opendoor has abandoned the model of house flipping that almost killed it during the housing crisis.
They are instead trying to be the Amazon of Real Estate, a platform that makes buying and selling houses easier by using technology.
Old model was brutal. Repeat: Buy houses, remodel them and hope they sell for a profit. Opendoor was stuck with expensive inventory when the housing market turned bad.
This new method is far more intelligent: it uses algorithms to determine the price of homes, links buyers and sellers and takes transaction fees. It also avoids all of the hassles associated with owning actual real estate.
On paper, this shift to an asset-light marketplace is a no brainer. You can rely on transaction fees as a predictable source of revenue, without having to invest massive capital in inventory.
What do analysts have to say?
Wall Street doesn’t buy it completely. Analyst price targets are around $1, which is nowhere near current prices above $6.
This disconnect indicates that professionals believe this rally is way out of step with the fundamentals. Recently, several firms downgraded this stock due to execution risk and speculation that was not sustainable.
It’s not unfounded. The real estate industry is a highly complex and localized one, where consumer tastes, regulations, and market conditions vary greatly.
It’s not easy to build technology that can compete with established players such as Zillow or traditional real estate agents.
Opendoor’s ability to maintain interest in its stock once the “meme fever” has subsided is also a question.
The retail-driven rally can be over as soon as it begins, particularly when the companies involved haven’t proven that their business model works.
The post Opendoor Stock Rockets 14% and Nears 52-Week Highs but Analysts are Still Cautious may change as new information is released.
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