3 Catalysts That Could Send Opendoor Stock Soaring Even Higher

Key Points

• Investors are suddenly taking a closer look at Opendoor after a notable hedge fund manager gave an ambitious price target.

• Opendoor is the clear leader in the iBuying industry, but it remains to be seen whether it can be profitable over the long term.

• There are some big catalysts that could drive the stock even higher this year.

• 10 stocks we like better than Opendoor Technologies ›

To say that real estate technology company Opendoor (NASDAQ: OPEN) has been a strong performer recently would be an understatement. Since the beginning of July, Opendoor stock has increased by more than 700%, and many investors believe it could go much higher.

That includes hedge fund manager Eric Jackson, whose bullish thesis on the company started the upside movement. In a nutshell, not only does Jackson believe that the fact that Opendoor is essentially the last major iBuyer standing gives the business an advantage, but also that there's massive potential to leverage the company's transaction data to develop artificial intelligence (AI)-powered tools for the real estate industry.

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Jackson, who notably predicted Carvana's 100x move when the stock was near an all-time low, said that Opendoor could be his next big 100x mover. At the time, Opendoor was trading for $0.82, so this implies a price target of $82. The stock trades for about $5 as of this writing, so he's still expecting a lot of future upside.

Image source: Getty Images.

It's about interest rates

First and foremost, the biggest potential upside catalyst (aside from pressure that comes from "meme stock" activity) would be lower interest rates. And there are a couple of big reasons why this could have an impact:

• Most importantly, lower interest rates could help thaw a stagnant real estate market. Many homeowners who would love to move feel "stuck" in their homes because they'd have to give up their low mortgage rates. Many would-be homebuyers find homes far less affordable with mortgage rates in the 7% ballpark than they would be if rates were to drop significantly.
• Opendoor borrows money to fund its operations and pays interest on the homes it buys in the "in-between" time -- that is, the time between acquiring the home and when it sells. Not only would lower rates give the real estate market a jolt and help reduce the average holding period, but they'd also make it cheaper for Opendoor to carry homes on its balance sheet.

The right leader could make a big difference

Opendoor CEO Carrie Wheeler recently decided to step down from her role after pressure from Jackson and other major investors, including Opendoor's co-founder Keith Rabois. This move was largely cheered by investors, but it also leaves a big question mark regarding what comes next.

Opendoor named Shrisha Radhakrishna, the company's CTO, as the interim leader and is currently searching for a permanent CEO.

In short, if Opendoor puts the right person in the CEO role, it could be a major upward catalyst for the stock. A visionary leader who shares Jackson's focus on leveraging Opendoor's data capabilities could serve to get investors even more excited. But appointing a leader who doesn't get investors excited could have the opposite effect.

Snowball effects in play

Finally, and we saw this in many companies in the 2021 speculative boom, there can be somewhat of a snowball effect when it comes to prices of hot stocks. And this can take several forms.

One is a potential short squeeze. In late July, Opendoor had about 23% of its float sold short. This isn't in pandemic-era GameStop territory but an elevated level of short interest. If the stock price starts to rise further, there could be a wave of investors who need to cover their short positions, which could push the stock higher.

As investors saw with the famous GameStop short squeeze, this can create a snowball effect that pushes a stock much higher. To be perfectly clear, this would likely be a short-lived catalyst.

Another form of a "snowball effect" is companies that raise growth capital as their valuations increase. Think about it this way: Opendoor could issue new shares or convertible notes and raise capital with one-eighth the potential dilution of just a couple of months ago.

Many of the 2020-2021 era's highest-flying companies took advantage of their valuations to raise capital, and if Opendoor stock keeps rising, it wouldn't be surprising if it did this, too. It's entirely possible that Opendoor could raise growth capital at $5 per share, investors could cheer the move, and then the company could raise even more at $10, $15, and so on.

The bottom line is that, although Opendoor's sharp upward move has been massive, it doesn't necessarily mean the stock can't go even higher as there are several catalysts that could push the stock higher from here. However, whichever direction Opendoor stock goes, it's a highly speculative investment at this point and likely to be volatile. Approach the stock with this in mind.

Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.