Offeringpad’s (OPAD) shares more than doubled in September after a brief flirtation in the meme stock market. The share price went from below $9 to $20 in a matter days.

Stocks that were bought during the spike have given back almost all their gains. I’m bullish on Offerpad after the sell-off, as the stock is de-risked at this lower valuation.

Offerpad, a unique business by itself, is attractively priced for a company that has good growth prospects. TipRanks has the Offerpad stock chart.

Description of your business

Offerpad was made public in September through a merger with Supernova Acquisition Partners. Supernova’s leadership included Spencer Rascoff, a founder and former CEO of Zillow (ZG).

Offerpad’s core business is buying and selling residential real estate as an “iBuyer” via its Express offering. iBuyers are essentially online real estate platforms where homeowners can sell their home directly to the company in lieu of enduring the traditional home selling process.

Investors may already be familiarized with Opendoor (NASDAQ:) and other iBuyers, as well as some larger online players such the Opendoor. Redfin (NASDAQ:) and Zillow which are also growing their own iBuying businesses.

Offerpad considers residential real estate a $1.9 billion opportunity and believes that approximately 1% are currently done digitally.  

Attractive Home Sellers

Selling a home is easy with iBuyer. Sellers will receive an instant cash offer after completing an online form. This compares to having to wait for buyers to contact them and using an agent.

Sellers don’t have to stage their homes for open houses, or inconvenience themselves with repeated showings. Offerpad claims that sellers can close within three days, as opposed to the usual 30-45 days for closing.

Furthermore, sellers don’t have to make repairs or concessions based on an inspection, as Offerpad makes these types of repairs itself in the interest of boosting its margins when selling these properties.

These advantages make it easier for sellers to sell. While the disadvantage for sellers is that Offerpad will offer them a lower price than traditional buyers, for certain sellers this may be worth it. These homes are then sold by Offerpad to individual homeowners and institutional investors.  

Offerpad has an impressive net promoter score (81), and nine of the ten sellers who were surveyed said they would recommend Offerpad for friends. 

Opportunities 

Offerpad will expand its presence to include ancillary businesses in the area of homebuying.

It is notable that the company already has a presence in title and mortgages. Medium-term, the company will expand its offerings into home warranties, home remodeling, and insurance.

Additionally, Offerpad plans to enter the energy efficiency and smart home market. Offerpad should be able to create synergies with its current core business, and it doesn’t have to reinvent the wheel to leverage its current strengths in these new businesses.

Offerpad would be able to enter these verticals successfully, which would result in a flywheel effect. It also gives it many cross-selling opportunities. Offerpad will become a one stop shop for selling and buying homes.

Company is looking to expand its geographic reach. Offerpad is currently active in over 1,000 cities in 17 major markets. The majority of its operations are located in the sunbelt. 

Valuation

Offerpad’s current market cap after the sell-off is $1.8 billion, meaning that the company is trading at around 1.7x sales. Offerpad claims that the median price-tosales ratio for digital realty platforms is 3.9.

Now, the company trades for far less than its expected 2022 revenues and well below its estimated 2023 revenue of $3.9 million. This is an extremely low valuation for a company that has grown its revenues at 92% over five years.   

Analysts rate Offerpad Hold. OPAD’s lone analyst has a Hold rating. However, their $11 target price implies 44.4% upside potential.

Risques

Offerpad faces a significant threat from the increased competition of deep-pocketed players Zillow and Redfin. Opendoor, another rival, has just significantly increased its borrowing capacity to purchase houses. 

While an overall economic downturn or a downturn in the housing market would theoretically be a risk for Offerpad, it’s also feasible that this would be an opportunity for the company as it would create more turnover and more sellers would potentially be in need of its Express services.

Takeaway

Offerpad shares have shown extreme volatility over the last month. This makes it a risky investment.

At current prices, however, there is a significant amount of risk that appears already to have been priced in. Rare opportunity exists to buy into a high-growth, disruptive business with a low-bin value.

Disclosure: Offerpad stock ownership at time of publication.

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