Offerpad has gotten torched over the last six months - since October 2024, its stock price has dropped 57.8% to $1.66 per share. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Offerpad, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Even though the stock has become cheaper, we're swiping left on Offerpad for now. Here are three reasons why there are better opportunities than OPAD and a stock we'd rather own.
Why Do We Think Offerpad Will Underperform?
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 503 in the latest quarter, and over the last two years, averaged 42.4% 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. Cash Flow Margin Set to Decline
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Over the next year, analysts predict Offerpad will flip from cash-producing to cash-burning. Their consensus estimates imply its free cash flow margin of 1.7% for the last 12 months will decrease to negative 3.6%.
3. Restricted Access to Capital Increases Risk
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 posted negative $29.22 million of EBITDA over the last 12 months, and its $237.2 million of debt exceeds the $73.63 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
We implore our readers to tread carefully because credit agencies could downgrade Offerpad if its unprofitable ways continue, making incremental borrowing more expensive and restricting growth prospects. The company could also be backed into a corner if the market turns unexpectedly. We hope Offerpad can improve its profitability and remain cautious until then.
Final Judgment
Offerpad falls short of our quality standards. After the recent drawdown, the stock trades at 15.8× forward EV-to-EBITDA (or $1.66 per share). This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there. We’d suggest looking at one of our top software and edge computing picks.
Stocks We Would Buy Instead of Offerpad
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