Offerpad Stock Worth The Risk?

 Offerpad Solutions stock (NYSE:OPAD), a real estate technology company that buys homes directly from sellers for cash and operates an online platform for buying, selling, renting, and renovating, surged by about 130% in Monday’s trading. The stock appears to have drawn attention as a meme stock – a term used for stocks that surge largely due to hype on online forums and retail trading momentum, rather than on fundamentals.  This speculative wave has also lifted peers like Opendoor, which has nearly tripled this year. Adding to the momentum, Fed Chair Jerome Powell hinted on Friday that an interest rate cut could be coming in September. This is positive for Offerpad on two counts. As a speculative, tech-focused stock, Offerpad tends to benefit when rates fall and risk appetite improves. More importantly, lower borrowing costs generally stimulate housing activity by reducing mortgage payments, which could boost demand and transaction volumes on Offerpad’s platform. Will Opendoor Stock’s Rally Continue?

Image by Paul Brennan from Pixabay

Is The Stock Best Avoided?

However, the fundamentals paint a much bleaker picture. OPAD stock may look inexpensive at a Price-to-Sales multiple of just 0.2x versus 3.3x for the S&P 500. But this multiple is a bit misleading, considering that the company books the entire home sale price as revenue rather than the spread it actually earns. It’s also notable that its margins are razor-thin (or negative) and the business is highly sensitive to cyclical market conditions. Underlying performance remains weak: revenues have contracted by 42% annually on average over the past three years, with a 30% decline in the last twelve months. Profitability is negative, with operating margins at -6% and net margins at -8%. Debt is particularly concerning at $217 million, roughly twice its $111 million market cap. Cash reserves aren’t too healthy either at just $23 million, or 8.5% of assets. With steep revenue declines, thin margins, and a heavily leveraged balance sheet, the micro cap stock looks cheap for a reason and remains best avoided.

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