2 Real Estate Stocks That Could Face Even More Trouble in Q4

The odds of a fourth consecutive 75-bps rate hike in November 2022 are pretty high. Moreover, mortgage rates have hit record highs this year. High mortgage rates have adversely affected buyers and sellers in the housing and real estate industry. U.S. existing home sales fell for an eighth consecutive month in September.

“Given the ongoing tension between potential homebuyers and home-sellers at the moment, we believe the pace of sales is likely to slow even further,” Doug Duncan, Fannie Mae’s senior vice president and chief economist, said earlier this month.

Furthermore, investors’ pessimism around real estate stocks is evident from the Real Estate Select Sector SPDR ETF’s (XLRE) 30.6% year-to-date losses.

Given the backdrop, fundamentally weak real estate stocks WeWork Inc. (WE) and Opendoor Technologies Inc. (OPEN) could face more trouble in the coming months and might be best avoided.

WeWork Inc. (WE)

WE provide flexible workspace solutions to individuals and organizations worldwide. It delivers technology-driven turnkey solutions, flexible spaces, and community experiences. Its product offerings include Core space-as-a-service, WeWork All Access, WeWork On Demand, and WeWork Workplace.

WE’s trailing-12-month EBITDA margin of negative 36.27% is lower than the industry average of 56.08%. Also, its trailing-12-month FFO to gross profit margin of 54.44% is lower than the industry average of 65.50%.

WE’s current assets came in at $1.21 billion for the period June 30, 2022, compared to $1.47 billion for the period ended December 31, 2021. Its total assets came in at $19.64 billion, compared to $21.76 billion for the same period.

Also, its other long-term debt came in at $1 billion, compared to $0.67 billion for the same period.

Over the past year, the stock has lost 76.6% to close the last trading session at $2.89.

WE’s poor prospects are also apparent in its POWR Ratings. It has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

WE have an F grade for Value, Stability, Sentiment, and Quality and a D for Growth. It is ranked last among 42 stocks in the F-rated Real Estate Services industry. Click here to access the additional POWR Ratings for WE (Momentum).

Opendoor Technologies Inc. (OPEN)

OPEN operates a digital platform for United States residential real estate. Customers can buy and sell homes online thanks to the company’s platform. Additionally, it offers escrow and title insurance services.

On October 8, 2022, Bragar Eagel & Squire, P.C., a nationally recognized stockholder rights law firm, announced a class action lawsuit against OPEN, alleging negligently prepared and untrue statements of a material fact or omitted facts regarding its merger and materially false and misleading statements regarding the company’s business, operations, and prospects.

OPEN’s trailing-12-month EBITDA margin of 0.28% is 99.5% lower than the industry average of 56.08%. Its trailing-12-month FFO to gross profit margin of negative 255.85% compares with the industry average of 65.50%.

OPEN’s total operating expenses came in at $454 million for the second quarter that ended June 30, 2022, up 46% year-over-year. Also, its total liabilities came in at $7.78 billion for the period ended June 30, 2022, compared to $7.26 billion for the period ended December 31, 2021.

OPEN’s revenue is expected to decrease 29.3% year-over-year to $2.70 billion for the quarter ending December 2022. Its EPS is expected to fall 58.6% year-over-year to negative $0.46 for the same period. The stock has lost 88.8% over the past year to close the last trading session at $2.67.  

OPEN’s POWR Ratings are consistent with this bleak outlook. It has an overall F rating, equating to a Strong Sell in our POWR Ratings system. It also has an F grade for Stability, Sentiment, and Quality and a D for Quality and Momentum. It is ranked #40 in the same industry.

We have also rated OPEN for Value. Get all OPEN ratings here.

WE shares were trading at $2.80 per share on Thursday morning, down $0.09 (-3.11%). Year-to-date, WE has declined -67.44%, versus a -18.47% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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