Back in 2021, some speculative shares went to the moon as US and UK retail stock investors throw caution to the wind and piled in. Then the proverbial hit the fan in 2022 and most lost 90% or more of their value inside 18 months.
One of those was Opendoor Technologies (NASDAQ: OPEN). Shares of the real estate platform soared nearly 200% to reach $34 in 2021, only to plunge 95% over the next two years.
Now though, meme stocks like this are back in vogue as a new speculative frenzy has taken over. Opendoor has jumped from $0.51 to just over $2 — a gain of 366% — in just under one month!
And it seems UK investors are keen not miss out because Opendoor was the second most-bought share on AJ Bell yesterday (22 July). It was ahead of both Nvidia and Tesla, and second only to National Grid.
Skinny-dipping
For those wondering, Opendoor is company that buys homes directly from sellers, does them up, and then resells them. It’s kind of like an online house-flipper.
This model was all well and good when interest rates were low and house prices were rising fast. You probably don’t need me to tell you what happened to the loss-making firm when rates shot up at the fastest rate in decades during 2022–23.
But let’s just say this iconic Warren Buffett phrase pretty much sums it up: “It’s only when the tide goes out that you discover who’s been swimming naked.”
Turns out Opendoor left itself a little too open.
Still about
To be honest, I’d forgotten all about the company until recently. If asked, I would have probably guessed that it had either gone bust, been delisted, or taken over at some very low price (relative to its former valuation).
But it’s still on the Nasdaq, and is now trending on Reddit’s WallStreetBets Page and other sites. It’s turning into the new favourite meme stock.
Unappealing financials
In Q1, revenue came in at $1.15bn, a 2% decline year on year. The adjusted net loss shrank from $80m to $63m, but the gross margin narrowed to 8.6%, down from 9.7% a year earlier.
While understandable, given the house-flipping model, that structurally low gross margin doesn’t get me too excited as an investor. Especially when the business has never proven to be profitable.
However, one upside of this stock market rally for Opendoor is that it could raise more money by issuing new shares. While this risks diluting existing investors, the firm could use the funds to shore up the balance sheet and potentially drive growth.
Beware meme stock mania
Finally, it’s worth noting that Opendoor was also the most sold stock on AJ Bell yesterday. This indicates that it’s likely being bought and sold as part of a day trading strategy.
As a long-term investor, I have no interest in trading speculative stocks. And with mounting threats to the global economy, I think we might be nearing peak meme stock mania.
Therefore, investors thinking about buying Opendoor shares might want to pack a towel, just in case the tide suddenly rushes out.
