Offerpad has gotten torched over the last six months - since July 2024, its stock price has dropped 36% to $2.95 per share. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Offerpad, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.Despite the more favorable entry price, we're swiping left on Offerpad for now. Here are three reasons why OPAD doesn't excite us and a stock we'd rather own.
Why Is Offerpad Not Exciting?
Known for giving homeowners cash offers within 24 hours, Offerpad (NYSE: OPAD) operates a tech-enabled platform specializing in direct home buying and selling solutions.
1. Decline in Homes Sold Points to Weak Demand
Revenue growth can be broken down into changes in price and volume (for companies like Offerpad, our preferred volume metric is homes sold). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Offerpad’s homes sold came in at 615 in the latest quarter, and over the last two years, averaged 41.6% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Offerpad might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability. 
2. Operating Losses Sound the Alarms
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Offerpad’s operating margin has risen over the last 12 months, but it still averaged negative 9% over the last two years. This is due to its large expense base and inefficient cost structure.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Offerpad burned through $29.01 million of cash over the last year, and its $250.8 million of debt exceeds the $58.43 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the Offerpad’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Offerpad until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
Offerpad isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 15.4× forward EV-to-EBITDA (or $2.95 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d recommend looking at Yum! Brands, an all-weather company that owns household favorite Taco Bell.
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