While Opendoor Technologies Inc. (NASDAQ:OPEN) had strong earnings and growing potential to gain market share, the iBuying model is “inherently risky, low-margin, and capital-intensive,” according to BofA Securities.

The Opendoor Technologies analyst: Curtis Nagle launched coverage of Opendoor Technologies with an underperforming rating and a price target of $8.

The Opendoor Technologies thesis: The company and other iBuyers use centralized models and algorithms to price and sell homes, which may not capture “all of the idiosyncratic factors that determine a home’s value.”

“Given that gross margin is determined by the spread by which a home can be bought and sold (plus additional home services) and the model requires ‘fast’ inventory turnover, we see little margin of error, especially during a downturn,” the analyst wrote.

“Open inventory growth significantly outpaced revenue growth in 2021” and “existing home sales are expected to turn negative in 2022 after two good years and home prices are slowing,” he added.

OPEN Price Action: Shares of Opendoor Technologies were down 3.31% at $10.30 at press time on Wednesday.