BETR trade ideas
$BETR Plummeting IPO With Soaring PotentialWhen Better Home & Finance Holding Company (NASDAQ: BETR) made its Nasdaq debut it was welcomed with sticks and stones in the form of mass selling that caused the stock to plummet more than 93%. That said, the stock is likely currently undervalued due to the fact that its cash balance dwarfs its current market cap. That aside, since the company is a housing giant and mortgage rates are highly likely to fall as the macro environment continues to improve, the company might rebound along with the whole mortgage lending sector. For this reason, BETR stock could be a bargain at its current beaten-down PPS.
BETR Fundamentals
During the post-pandemic boom in demand for houses, BETR established itself as a leader in the mortgage space since it grew its funded loan volume from $24.2 billion in 2021 to $58 billion in 2021. However, as interest rates started to climb due to the Fed’s efforts to curb inflation, demand for houses declined sharply as it became less affordable to buy houses.
That said, mortgage rates may be set to start declining by the end of 2023 and throughout 2024 as the macro situation continues to improve. Currently, major financial institutions are predicting a fall in mortgage rates including Moody’s Analytics, Fannie May, The National Association of Realtors, Morgan Stanely, Goldman Sachs, and many others. Normally, conventional wisdom dictates that falling interest rates mean rising mortgage rates, however, that is not always the case. Factors like inflation and market conditions play a role in dictating the path of the market’s invisible hand.
As is, inflation is declining at an impressive rate which is a testament to the Fed’s efforts over the past year. At the same time, student loan payments are set to resume later this year which would add more pressure on consumers – making it further less affordable to acquire a house. In this way, mortgage rates may very likely fall which could be considered a great opportunity for the housing market’s growth. This would positively impact mortgage lenders like BETR as there would be more demand for houses – increasing demand for mortgage lenders’ services.
Given the company’s position as an industry leader and the general expectations that mortgage rates will start declining soon, BETR stock could be a bargain at its current valuation. In its registration form, the company announced that 36% of its 802.3 million shares would be available to be traded freely in the market which means that its outstanding shares could be estimated to be around 288.8 million. Given this number of shares, the company’s market cap would be around $343.7 million at the current share price.
With this in mind, the company unlocked around $565 million in fresh capital after the consummation of its SPAC merger which means that the company has more cash on hand than its current market cap, indicating that BETR stock could be extremely undervalued at current levels.
However, investors should note that dilution may occur since the funds the company has access to include a $528 million convertible note committed from affiliates of SoftBank. This means that at the current share price, this note may be converted into 443.6 million shares which would be a 55% dilution to current shareholders.
Technical Analysis
Looking at the 5-minute chart, BETR stock is trading in a neutral trend as it is trading in a sideways channel between $1.16 and $1.32. Looking at the indicators, the stock is trading below the 50 and 21 MAs which is a bearish sign. Meanwhile, the RSI is neutral at 44 and the MACD is approaching a bullish crossover.
As for the fundamentals, BETR is likely undervalued at current levels given that its cash balance is more than half of its market cap. Moreover, the company’s core business could improve in 2024 as mortgage rates are expected to start declining. With the stock trading near support, long-term investors could find the current PPS an opportunity to go long on the stock.
BETR Forecast
While BETR plummeted more than 93% on its NASDAQ debut, the stock may be poised to substantially increase in value since it could be considered extremely undervalued at current levels. This is due to its cash balance dwarfing its market cap which is a sign that the stock may run soon to better reflect the company’s value. Meanwhile, the stock could be an opportunity for investors bullish on the housing market’s future given the expectations of mortgage rates declining in 2024 – rejuvenating the housing market in the process. In light of this, BETR stock could be a bargain at current levels for long-term investors.
BETR Better Home & Finance Holding potential SHORT SQUEEZEOn August 24th, the shares of Better Home & Finance Holding (BETR), a company backed by SoftBank, experienced a drastic decline of over 94%. This downturn came as investors showed reluctance toward the online mortgage lender. The company had recently gone public through a merger with a blank-check company (Aurora Acquisition Corp SPAC) precisely when mortgage rates had surged to the highest levels seen in two decades.
In the case of Better Home & Finance Holding, an overwhelming 95% of Aurora shareholders chose to redeem their shares. This decision left the trust account of the SPAC with approximately $24 million by the end of June, marking a significant decrease from the roughly $283 million it held at the conclusion of the previous year. These details are revealed in filings.
Typically, when a stock has only a small number of publicly available shares, it becomes susceptible to high levels of volatility. Despite trading at $0.77 intraday, it's worth noting that on August 2nd, the SPAC associated with BETR was trading significantly higher, at over $60.
The situation with BETR brings to mind past posts of mine regarding the potential short squeeze scenarios witnessed with AMC Entertainment and GME Gamestop:
Given the limited liquidity in play, I am inclined to believe that a short squeeze might be on the horizon for BETR.
Looking forward to read your opinion about it!
Long possible scenarioIf it hold 30.95 long
Take profits 30% at 37.38
Take profits 70% at 58
Stop limit 29.50
