Opendoor Stock Is Dropping. Should You Buy It on the Dip?

Key Points

• Opendoor stock is coming off its rally of nearly 2,000% over the past few months.

• It has a disruptive tech model that could change real estate when the market improves.

• Opendoor stock is volatile right now, and its movement is tied to concrete company action.

• 10 stocks we like better than Opendoor Technologies ›

If you hadn't heard of Opendoor Technologies (NASDAQ: OPEN) before June, chances are you've heard of it since. Opendoor stock has had an unparalleled rally over the past few months, fueled by retail investor power and the strength of social media.

Opendoor stock gained nearly 2,000% from its low in June through its year-to-date high in September, but it's been starting to fall since then. Is now a good entry point?

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Unlocking the digital real estate market

Opendoor was one of a class of disruptive technology companies that were aiming to change up real estate transactions, but the others in the group have mostly pulled back in the high interest rate climate. It's an iBuyer, which means that it buys, fixes up, and resells homes at a higher price. That kind of business requires a lot of capital, and high interest rates make it a challenging feat to pull off. Not only do the rates sit on its own homes, but they have devastated the residential real estate market, with rising prices and rates that put home ownership out of reach for the millions of Americans who have been waiting for a home to call their own.

Management has been doing all sorts of things to stay afloat and stay relevant as well as generate sales and engagement. On one side, it's been taking action to cut costs and boost profitability so it can continue to operate and wait out the poor market. Net loss was $29 million, much improved from $92 million last year in the second quarter.

Since interest rates have been getting cut, the market is likely to bounce back, but it's been stubborn so far despite rates starting to come down. According the latest data from the National Association of Realtors, existing home sales decreased slightly in August from July, but were up 1.8% over last year, while the median price was 2% more year over year.

On the other side, it's been exploring new relationships and projects to bring more customers through its doors to generate sales. It recently piloted a new venture partnering with more agents, who use Opendoor's platform to find customers and then give a cut of the sale to the company. The results have been positive: twice as many customers reach a final cash offer, and they get it much faster. Opendoor is launching the new program in all of its markets.

Risk vs. reward

Opendoor stock's rally started when hedge fund manager Eric Jackson started posting about it on social media, claiming that it could be the next Carvana. Carvana stock had a similar rally after plunging last year, and the company has made a serious turnaround. Investors who bought at the beginning of 2024 are 600% richer today.

Investors who bought into Opendoor's story early on have done even better, but you can't time the market, which is one of the problems with this kind of play. The price is already coming down, and that might continue -- or it might not. The other major problem is that the stock movement isn't tied to concrete improvement in the company, which is why it's so risky. The stock could move either way depending on investor sentiment and nothing else.

There are good reasons to be confident in Opendoor's long-term potential. It has a disruptive digital model, and it's one of the only iBuyers left in the space. When the tide turns, it has an edge. It just got a new CEO after the previous one was ousted after the investor activism took root, and that's sparking enthusiasm. If you buy today because you believe in the company's future, and you have a strong appetite for risk, now may be a great time to buy shares. However, considering the volatility, it's too risky for most investors at this point.

Should you invest $1,000 in Opendoor Technologies right now?

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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.