Opendoor Technologies(NASDAQ: OPEN) stock has gained 79% over the past year despite adverse market conditions and tanking sales. Investors have been betting on a comeback, and with the stock's price-to-sales ratio as low as 0.05 last year, it seemed a reasonable opportunity for investors with a high risk tolerance and a long time horizon.
That could still be true even at today's prices, and Opendoor stock is still sporting a cheap price-to-sales ratio of 0.3. But whether or not Opendoor's business can rebound in the long term, it's not likely to happen this year.
Home sales aren't going anywhere right now
Opendoor's revenue dropped 55% in 2023 with the number of homes sold falling 52% to 18,708. The Federal Reserve has indicated that it could cut interest rates as early as next month, and that could spark a recovery in the dismal home-buying industry. But even the rate cuts are uncertain at this point since inflation remains elevated.
Whenever they do happen, it will take time for their effects to ripple through the rest of the economy. U.S. home sales are expected to stay depressed in 2024, and even next year, they may just start creeping back up.
Image source: Statista.
Opendoor stock is down 36% year to date, including a 14% sell-off following the fourth-quarter earnings report. Management didn't provide full-year guidance, but it's expecting continued high losses in the first quarter, while revenue plunges from $3.1 billion in Q1 2023 to $1.1 billion on the high end of the company's outlook. It only bought 11,246 homes last year versus 34,962 homes in 2022. That means it doesn't have much of a chance to rebuild its business -- yet.
Even long-term, forward-thinking investors might want to steer clear of Opendoor right now. Its model hasn't proved itself for long enough to be a sure thing when the real estate market improves. You can always revisit it when industry conditions become more favorable.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Opendoor Technologies. The Motley Fool has a disclosure policy.
