Opendoor Technologies (NASDAQ:OPEN) runs a digital platform for residential real estate. It is also on a massive home-buying spree. Eventually, that will lead to much higher cash flow, as I pointed out in my previous article on OPEN stock last month.
In fact, my analysis showed that at the time, it was way too cheap. I pegged its value at $22.58 per share. Since then the stock has moved up about $1.97 from $15.12 on May 12 to $17.09 on July 1, or up 13%. I still think my price target holds as the stock is likely to gain a new rating by analysts with its upcoming earnings for Q2.
So far this year OPEN stock is up 47% as of July 1 ($17.09) and is up 11% in the past month. I believe the stock will continue to move higher, especially as investors realize that the company will eventually become profitable with its home buying.
Projections for Opendoor’s Profits
Analysts foresee sales rising to $9.3 billion from $5.1 billion this year, a massive 82% gain over the next year. Given its $10 billion market capitalization today, that puts it just over one times sales.
My analysis in my last article was based on a 2022 estimate of $8.84 billion. So 2022 forecasts have risen 5.2%. Moreover, my analysis was based on 3 times sales for 2021. We can now apply that metric to 2022 sales. For example, even if we used 2 times sales for 2022, the market value should be $18.6 billion. That is 86% above today’s market value.
Just to be even more conservative, let’s say the market eventually values OPEN stock at 1.5 times 2022 sales estimates. That gives it a market value of $13.95 billion (1.5 x $9.3 billion). This is 39.5% above the present $10 billion valuation for Opendoor Technologies.
What OPEN Stock Is Worth
It also implies that OPEN stock is worth $23.84 per share. This is 5.58% above my previous target value of $22.58 per share.
Keep in mind as well that analysts project profits will arrive in 2025. For example, Seeking Alpha reports that earnings per share (EPS) will hit 14 cents in 2025, 61 cents EPS in 2026, and $1.17 EPS in 2027. Those earnings should be discounted to their present value. However, most investors seem to be valuing OPEN stock on a price-to-sales (P/S) basis, at least until the company gets profitable.
As Barron’s magazine points out, despite the company’s lack of profitability, many analysts are “intrigued” about its prospects. Barron’s says that of eight analysts covering Opendoor, five call its shares a Buy, while three rate the stock a Hold.
The fundamental reason that analysts like the stock is that it’s not dependent on the real estate cycle. That is because Opendoor’s standing offers to buy and sell homes provide “convenience and certainty” to buyers and sellers.
TipRanks indicates that the average of 4 analysts’ target price is $28.00, or 63% above today’s price of $17.09, as of July 1, 2021. Seeking Alpha also indicates that 7 analysts have an average price target of $31.83 per share. That represents a potential gain of 86% over today’s price.
What To Do With OPEN Stock
Opendoor provided very specific and excellent guidance for Q2 that should provide a huge boost to OPEN stock if it comes true. The company said on page 13 of its Q1 shareholder letter that it expects “41% sequential growth over 1Q21 at the midpoint of the expected range.” A company that has 41% quarter-over-quarter revenue growth implies that its annualized revenue will move 295% higher.
This is a huge growth rate. No wonder analysts have such high price targets on the stock. The fact is Millennials want an alternative like this when they go to buy and sell homes, with their digital click-and-buy habits.
Expect to see OPEN stock spike to at least $23.84 per share fairly soon. This represents a potential 39.4% gain in the stock. That could easily happen with the release of the company’s Q2 earnings report, probably in late July or early August.
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 InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.