Why Opendoor Stock Could Be Going to $0

Never let it be said that Opendoor Technologies (NASDAQ: OPEN) stock doesn't keep things interesting. From 2021's post-IPO peak of more than $34, to this July's low of less than $1, back to its current price of nearly $8 apiece, shares of this real estate sales-listing platform have been all over the map.

The latest drama? Short-sellers are selling into the recent recovery, arguing that the meme stock's run-up is rooted in misguided hopes that an actual profit is in the near-term cards. Now the company's management is getting into the fight. Earlier this month, Opendoor granted warrants -- the option of buying shares of the company in the future at a pre-set price -- to existing shareholders in an effort to push short-sellers out of their trades, and, ideally, also silence their criticisms. Management simultaneously bolstered this initiative by unveiling a three-point plan to push the company out of the red and into the black within a year.

Image source: Getty Images.

There's a reason that neither of these moves has had any lasting bullish effect on the stock. That is, the business model's math just doesn't add up ... figuratively or literally.

Goals and plans aren't guarantees

Opendoor isn't the only name in the business. Zillow Group (NASDAQ: ZG) and Redfin (now owned by Rocket Companies (NYSE: RKT)) manage similar real estate-listing websites.

Opendoor Technologies is a bit different. It also buys homes from individuals, then -- hopefully -- sells them for a profit. Indeed, its three-point turnaround plan introduced earlier in November doubled down on this aspect of the business, with plans to purchase even more homes and improve the profit margins and speed on the resale of these homes. New CEO Kaz Nejatian's confidence in the "refounding" was almost convincing.

Almost. Investors are still balking because they know older rivals like Redfin and Zillow almost never turned a consistent profit, even when times were good and interest rates were low. The business isn't going to get any easier when interest rates are high and the real estate market is lethargic, like it is now. Indeed, Zillow and Redfin both previously bought and sold houses as well. Each ultimately opted to shut these capital-intensive businesses down because they couldn't make them work. There just wasn't an effective way to bring enough marketable value to the table.

And that was before interest rates were ratcheted higher.

More risk than reward

Never say never. Anything's possible.

Not everything is necessarily likely, however. There are plenty of examples where a company and investors were certain a business would thrive, yet it never did. Groupon, GoPro, MySpace, and most meal kit outfits are just some of the names that come to mind. Most of these organizations had seemingly impressive turnaround plans in hand at one point in time as well. They didn't pan out, largely because the true problem was the business premise itself.

But will Opendoor stock actually fall to a price of $0? There's no way of knowing. Such a tumble would imply bankruptcy, and there's a reasonably good chance a suitor would acquire the company for little more than a song -- for its brand name -- before that happened.

Regardless, the plausible future looks grim, even if it doesn't drive the stock all the way into oblivion.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Companies and Zillow Group. The Motley Fool has a disclosure policy.