Opendoor Technologies Still Looks Quite Undervalued Now With Profitable Operations

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Opendoor Technologies (NASDAQ:OPEN), the digital platform for residential real estate, turned the corner with its second-quarter results released on Aug. 11. Its adjusted net income and EBITDA (earnings before interest, taxes, depreciation and amortization) both turned positive from negative results last quarter. As a result, using simple measures of its valuation, OPEN stock is worth at least 20% more at $20.58, vs. its Aug. 26 price of $17.15.


This could mean the stock moves even higher this year, as it’s down 24.5% from the end of last year when it closed at $22.73. However, OPEN stock is still down from its first day of trading on Monday, Dec. 21 when it closed at $31.25.

Where This Leaves Opendoor Technologies

Opendoor produced an adjusted net income of $2.5 million, versus a negative $21 million in Q1. Moreover, its adjusted EBITDA was $26 million vs. negative $2 million in Q1. The company decided to compare its results with its prior quarter, as in 2020 it ceased buying and selling homes for its own account.

Opendoor grew sales by expanding to 39 markets at the end of Q2, 21 with 12 new market launches. Moreover, more people are selling their homes directly to Opendoor. Its acquisition volume grew 136% quarter-over-quarter to a total of 8,494 homes during Q1. The company claims this was the highest level of home purchases it has ever made.

The bottom line is that the company is now on track to make over $6.65 billion in revenue this year, according to analysts surveyed by Seeking Alpha. Analysts surveyed by Refinitiv, which Yahoo! Finance publishes, have an average estimate of $6.26 billion. So the average survey is about $6.455 billion.

This means that Opendoor trades for just 1.59 times sales, as Yahoo! Finance indicates that the market valuation right now is $10.26 billion. However, since the market always looks forward, let’s estimate what its valuation metric is for 2022.

For example, the Seeking Alpha analysts’ survey forecasts 2022 sales of $12.02 billion, and Yahoo! Finance estimates $10.57 billion. The average of these two is $11.3 billion. That implies that its price-to-sales (P/S) metric is just 0.91 times sales (i.e., $10.26b/$11.3b).

Therefore, if OPEN stock were to trade at Aug. 26 P/S multiple, it should rise to $18.0 billion (i.e., 1.59 x $11.3 billion). This implies that Opendoor Technologies should rise by 75% (i.e., $18b/$10.26b). This is one way of valuing OPEN stock. It leads to the conclusion that the stock is worth $30 per share (i.e., 1.75 x $17.15 per share Aug. 26).

Another Way to Value OPEN Stock

Opendoor made $26 million in adjusted EBITDA during Q2. This was after a prior quarter of negative performance. So there is reason to believe that as sales rise, its EBITDA margin should start to rise. That is called operating leverage.

For example, since sales in Q2 were $1.185 billion, its Q2 adj. EBITDA margin was 2.19%. Therefore, if sales were to double over the next year, it’s likely that the EBITDA margin could more than double, and likely move up 4 times to a 10% EBITDA margin. The reason is its operating costs will tend to stay fairly level, or only slightly higher.

This implies that by the end of 2022, with sales at an average forecast of $11.3 billion, its adj. EBITDA will hit $1.13 billion. So at 10 times adj. EBITDA, its implied valuation is $11.3 billion. At 12 times EBITDA, the valuation will be $13.56 billion. This is 32.2% over Aug. 26’s market value of $10.26 billion. That works out to $22.67 per share.

So, now we have two potential valuation points. On a P/S basis, the price target is $30 and with a 12 times adj. EBITDA multiple it’s at $22.67. The average of these two is $26.34 per share. That implies a gain of 53.6% over Aug. 26’s price of $17.15.

What to Do With OPEN Stock

Analysts are still very positive about Opendoor Technologies. For example, reports that 3 analysts covering the stock in the last 3 months have an average target of $27.50, or 62% over its Aug. 26 price. Moreover, Seeking Alpha reports that 6 Wall Street analysts on the sell-side have posted an average target price of $31.80. This is 85.4% over its Aug. 26 price.

These analyst target prices are higher than my target price of $26.34. And they probably have much more sophisticated models valuing the company than my methods. But you don’t always need these highly sophisticated models.

If the 53.6% implied gain in my estimate of the $26.34 price target seems too optimistic, let’s assume it takes two years to happen. That implies that its compound annual growth rate will be 23.9% per year.

In fact, here is probably the simplest model than anything else. Even if OPEN stock were to trade at 1 times sales forecast for 2022 (i.e., $11.3 billion), it would have to rise by 10%. That is because yesterday’s market value was $10.26 billion. So $11.3 billion divided by $10.3 billion is 1.10, implying a minimum gain of 10% as long as analyst estimates for next year turn out. In fact, if the Seeking Alpha estimate of $12.02 billion occurs, the stock has a minimum upside of 17%.

So, the bottom line is that OPEN stock is likely to rise somewhere from 10% to 23.9% over the next year.

On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Mark Hake writes about personal finance on and runs the Total Yield Value Guide which you can review here.