Key Points
Opendoor stock has soared on meme-trading mania.
Some investors believe the stock could be the next Carvana.
Buying and holding stocks long term is a better strategy than jumping on soaring meme stocks.
10 stocks we like better than Opendoor Technologies ›
There are meme stocks, and then there’s Opendoor Technologies (NASDAQ: OPEN).
Shares of the online home-flipper have skyrocketed over the past few sessions after several posts on Reddit and X.com argued the stock could come back from the dead and surge 100 times higher like Carvana has.
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Like other meme stocks before it, more investors piled into the stock as it gained momentum, and it jumped a whopping 545% in just six sessions from its close on July 11 to its intraday high on July 21 of $4.97.
Trading volume in Opendoor increased for five straight sessions, reaching 1.88 billion shares on July 21, more than double its outstanding share count. That means the average Opendoor share changed hands more than twice on its busiest trading day, a rare feat, and one that shows the sudden interest in the stock among investors.
Call option buyers also seem to have created a massive gamma squeeze, which happens when demand for call options forces market-makers to buy shares of the stock to offset their risk.
However, as of market close on July 23, Opendoor stock has already begun to give up much of its gains with shares trading at $2.29.
Even so, the stock has quadrupled from its low point in June, and many investors may be wondering if it’s too late to buy the stock. Let’s dig into the situation here.
Image source: Getty Images.
What’s driving Opendoor higher?
There has been no fundamental change to Opendoor’s business that would explain its recent gains. Instead, the move was orchestrated by traders, some of whom believe Opendoor is undervalued and poised to take off when the housing market recovers.
After going public to a warm reception in 2020, Opendoor shares collapsed as the pandemic waned and higher interest rates led to a sharp slowdown in the housing market.
Since then, Opendoor has continued to lose money and is struggling to grow as real estate activity remains subdued. Cost cuts have helped narrow its losses, but a comeback without help from the housing market seems unlikely as Opendoor’s business, which involves flipping homes and collecting fees for services, works much better in an environment where home prices are going up and real estate activity is high. With inflation now rising because of pressure from tariffs, interest rate cuts have become less likely.
Opendoor has historically been a volatile stock, and its sensitivity to interest rates does make it attractive for meme traders who see falling interest rates as a potential trigger for its recovery.
Is Opendoor a buy?
If you’re wondering whether it’s too late to buy Opendoor stock, it’s worth asking yourself what your financial goals are.
If you’d like to place a high-risk bet on a meme stock that could be a multibagger, buying shares of Opendoor might be for you. However, you also need to accept the risk of losing money, including possibly most of your investment, if you buy the stock now. Opendoor has always been a money-losing business, and the chances of the business turning around without an overall improvement in the housing market are slim.
No one knows where Opendoor stock is headed in the short term, though volatility seems guaranteed. Volatility does create opportunity, but it also increases the risk for catastrophic losses as existing shareholders have experienced with the stock down more than 20% on July 23.
Those mesmerized by Opendoor stock’s recent surge must ask themselves if they want to invest in the stock market or gamble in it because historically, buying and holding stocks over the long term has generated superior returns to short-term trading.
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Jeremy Bowman has positions in Carvana. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
