Opendoor Technologies ( OPEN -2.68%) was notified by the Nasdaq in May that it faced removal from the exchange due to its persistently low share price. This triggered a chain of events that sent the stock soaring, with shares climbing more than 1,600% over the past three months. A significant factor in this turnaround was the appointment of Kaz Nejatian as the new CEO. But what does this development really mean for those considering an investment?
The story behind Opendoor Technologies
Opendoor's main operation centers on flipping houses. Traditionally, this has been the domain of individual or small-scale investors who buy homes at a bargain, make modest upgrades, and resell them for a profit. These investors often handle renovations themselves to minimize expenses. Opendoor’s strategy is to bring this model to a much larger scale.
Image source: Getty Images.
So far, the company hasn’t achieved lasting success. While Opendoor has been buying and selling homes for years, it has yet to post a full-year profit from these activities. It remains a start-up that continues to lose money. This risk was not lost on Wall Street, which steadily drove the share price down until it entered penny stock territory.
Penny stocks are a particularly volatile segment of the market, generally suited only for the most risk-tolerant investors. As is typical for stocks trading at such low prices, Nasdaq sent Opendoor a formal warning that it could be delisted if the price didn’t recover. To address this, the company announced plans for a reverse stock split—a common move in these situations, but one that often signals deeper issues and highlights the risks of investing in Opendoor.
However, things shifted dramatically soon after. The company replaced its CEO, influenced in part by an activist investor, and brought in Kaz Nejatian from Shopify as the new chief executive. Nejatian began outlining plans to leverage artificial intelligence (AI) in hopes of transforming Opendoor into a consistently profitable business.
OPEN data by YCharts
Opendoor stock surges dramatically
It’s no exaggeration to say Opendoor’s share price has skyrocketed, rising over 1,600% in just three months. Still, this surge started from a very low base, and the stock currently trades at about $9. The dramatic change in sentiment on Wall Street is clear, with Opendoor appearing to ride the wave of recent meme stock mania.
The main point is that investor sentiment is now the primary force behind the stock’s movement. This introduces significant risk, as sentiment can shift just as quickly in the opposite direction. A sharp drop in Opendoor’s share price remains a real possibility. Most investors should not expect the stock to continue its meteoric rise indefinitely.
The bigger issue is that the market has already factored in a great deal of optimism, even though the new CEO hasn’t yet had the opportunity to implement substantial changes. At this stage, Nejatian’s plans—such as adopting AI and reducing staff—are still just proposals. While these steps could cut costs and potentially lead to profitability, there’s no proof yet that they will succeed. Implementing these changes will also require both time and investment.
Wait for tangible progress at Opendoor
At present, the only certainty for Opendoor investors is change. What those changes will actually mean for the company’s performance remains uncertain. Some on Wall Street are clearly betting that these shifts will dramatically improve Opendoor’s financial outlook. But if results fall short, take too long, or prove too costly, investor sentiment could quickly reverse.
In summary, after a stunning rally, uncertainty is the prevailing theme for Opendoor. Unless you’re a highly speculative investor, it’s wise to stay on the sidelines until the new CEO can demonstrate real progress and show that his strategies can turn this loss-making company into a sustainable, profitable enterprise.
