Opendoor Stock Is Surging Again. Steer Clear of This Meme Rally.

Opendoor Technologies has emerged as the market’s latest so-called meme stock. (Courtesy Opendoor)

Opendoor Technologies stock looked set to extend its stellar recent run on Tuesday—but investors should be careful not to get burned.

Shares of the real-estate-focused tech company were up 17% to $3.71 in early trading. The benchmark S&P 500 index was flat.

Opendoor stock is up more than 300% since July 11, with an endorsement by EMJ Capital founder and activist investor Eric Jackson on X appearing to trigger retail interest.

Created with Highcharts 9.0.1Opendoor TechnologiesSource: FactSetAs of July 22, 4 p.m. ET

Created with Highcharts 9.0.1Aug. 2024'250.000.501.001.502.002.503.00$3.50

It looks like a classic example of a meme stock —the term used to describe the likes of GameStop and AMC Entertainment Holdings when they rallied four years ago thanks to their popularity on social-media forums like Reddit’s WallStreetBets.

There are two obvious drawbacks that should put off investors from buying into the rally.

The first is that the real-estate market has gone stagnant. Existing-home sales have fallen by nearly 50% since Opendoor went public in late 2020, and the company has reported adjusted losses for 11 straight quarters. That makes for a bleak outlook: Only one of the nine analysts covering the stock has a Buy rating, and the consensus price target for shares is just 93 cents, according to FactSet data.

The second is that timing is everything with these sorts of investments. Opendoor stock spiked as much as 79% on Monday, then gave up a big chunk of those gains in a late pullback, finishing with a gain of 43%. Anybody who bought in early in the afternoon would have ended up losing money.

Proceed carefully. These sorts of eye-popping returns might look tempting, but trying to make a quick buck off the meme-stock mania is fraught with risk.

Write to George Glover at george.glover@dowjones.com