Chit Chat Stocks: Opendoor & Portillo’s at a Crossroads

Date: September 1, 2025
Hosts: Ryan Henderson & Brett Shafer
Guest: Steve from Unemployed Value DGEN

Episode Overview

In this episode, Brett and Ryan welcome first-time guest Steve from "Unemployed Value DGEN," a newsletter focused on underappreciated small cap stocks. The discussion dives deep into two companies facing pivotal moments: Opendoor, the real estate tech disruptor amidst a management overhaul, and Portillo's, the beloved restaurant chain struggling outside its Chicago home base. The conversation covers the role of management, business models, key financials, and the prospects for each company given industry and macroeconomic challenges.

Introduction to Steve & Investing Strategy

• Steve introduces his approach: relentless exploration of small caps, looking for mispriced opportunities overlooked by large funds and quants.
• Why Small Caps?
  • Asset managers can't buy them due to illiquidity; quants with huge positions miss qualitative shifts (e.g., mine that triples cash flow overnight).
  • Quote [02:25]:

    “Small caps have the best chance of being mispriced because some of the most skilled investors can't look at them.” – Steve

Opendoor: Disrupting Housing or Doomed Meme Stock?

Business Model & Opportunity

• Nature of the Market: Home selling process is archaic and ripe for disruption. Over $2 trillion in U.S. housing sales annually.
• Network Effects Potential: Opendoor aspires to be the "Uber of housing," creating a two-sided network for buyers and sellers, not just sellers.
• High Risk, High Reward: Steve’s view—could go to zero or disrupt an entire industry and be worth $200B–$1T.
• Quote [05:12]:

  “Whoever disrupts that is going to be a trillion-dollar company easily.” – Steve

Importance of Management

• Management: New CEO (Kaz Natajian, ex-Shopify) and Board Chair (Keith Rabois, ex-PayPal Mafia, Khosla Ventures) are seen as fast-moving, iterative, and venture-minded.
• Steve’s framework: In tech, the speed and quality of problem-solving by the CEO is crucial, more than even the initial product or idea.
• Quote [11:41]:

  “All that matters in tech is how fast the CEO is solving problems.” – Steve

Carvana Analogy

• Carvana Example: Steve’s prior big win—saw everyone mocking Carvana, but he bet on the founder’s competence and held through volatility (though sold calls too early, missing the huge run-up).
• Quote [15:09]:

  "I bought 4000 shares of Carvana at $3.92… then sold calls at $5… probably the largest investing mistake of my entire life." – Steve

Financials & Business Model Questions

• Mounting Losses: Cumulative negative FCF of $4.5B, margins of 8%, capital intensive business.
• Adverse Selection Problem: Sellers know more than buyers—a/k/a the “market for lemons.” AI & ML may soon fix many housing valuation problems (e.g., AI analyzing houses from photos for pricing).
• Quote [18:05]:

  “If you have enough pictures of the interior, AI can fully map out the floor plan and you can figure out is this an awkward layout or is this an attractive layout?” – Steve

Capital Allocation & Meme Stock Dynamics

• Volatility: Opendoor is now a meme stock, with market swings driven by options and retail speculation.
• Position Management: Steve initially small, now ~15% of his portfolio. Warns against concentration, expects ongoing wild swings.
• Positive Feedback: Meme-stock status drives business (Reddit investors use the service), bringing in more volume.
• Quote [24:08]:

  “This is a battleground of call buyers and put buyers… I would not want to be on the short side of this.” – Steve

Macro & Tailwinds

• Macro Setup: Anticipates rate cuts, new Fed chair, and political efforts to unfreeze the housing market.
• Execution: Opendoor’s new leadership expected to roll out rapid innovation, possibly including an acquisition of Rome to unstick frozen mortgages.
• Variant View: Steve believes the time window for a full verdict on Opendoor is years, not months.
• Quote [30:11]:

  “Even if they're wrong, I think it'll take a couple of years to find out if they're wrong.” – Steve

Portillo’s: Beloved Brand, Execution Woes

Initial Thesis

• Rare Quality & Value: Steve calls Portillo’s one of the few companies that's both high-quality and mispriced.
• Value Proposition: Real food, higher cost ingredients than other fast food, fanatical customer following, industry-best Net Promoter Score.
• Chicago’s Secret: Chicago-area locations do $10M+ revenue, $3M+ net profit per location.
• Quote [33:06]:

  “This is a company that is going to be incredibly profitable. It'll be incredibly profitable even in bad years. It'll be massively profitable in good years.” – Steve

Current Issues

• Guidance Cut, CEO Change: Recent restaurant guidance reduction, CEO “gently fired,” and activist investor engagement.
• Core Problem: Steve attributes recent stagnation to lacking a Chief Marketing Officer (CMO), whose absence led to poor openings and muted awareness in new markets.
• Quote [40:54]:

  “I personally believe…the vast majority of Portillo's problems is because their chief marketing officer got poached…” – Steve

Outside Chicago: Marketing Makes (or Breaks) It

• Sun Belt Struggles: New Florida and Texas stores do $4M/year—not bad, but buildings sized for Chicago-level $10M volumes.
• Proof of Concept: In Dallas (2023), proper marketing led to $17M revenue year one. Post-CMO, launches much worse. Arizona stores from a decade ago eventually ramped up, showing it can work with time and word-of-mouth.
• New CMO: Hired from Marco’s Pizza, with expertise in online ordering and rewards. Nearly 2M rewards signups from just 86 locations—a ratio dramatically higher than Chipotle.
• Steve’s View: With real marketing leadership, the narrative and performance will shift.

Financials & Board/Activist Dynamics

• Aggressive Expansion: Fast growth (10 new stores in 2024), high build costs ($6–7M), partly debt-financed.

• Board/Activist Influence: Growth slowing for better free cash flow and less capex burn. Board now features hires from Domino’s and Chipotle.

• Valuation:

  • Trading at 0.66x sales (Chipotle is 5–7x).
  • Market cap per store is $4.7M—Chicago stores can throw off $3M+ cash each per year.
  • Quote [59:31]:

    “Most of the financial metrics once you look past the capex of the growth trajectory are amazing still.” – Steve

• Long-Term Vision: If outside regions reach Chicago economics, this can be a “future O’Reilly Auto Parts or Domino’s”–type compounder over 20 years.

Steve’s Key Metrics for Portillo’s

1. Price Discipline: Will management resist jacking up prices at the expense of customer fanaticism and quality?
   • Quote [62:23]:

     “The one thing they could do that would make me cut my position… is if they abandon the everyday value approach.”

2. Same-Store Sales & Rewards Growth: Watching for increases as marketing effectiveness returns.
3. Ability to Lure Talent: Deep bench of former Domino’s, PF Chang’s, Chipotle professionals eager to join.

Notable Quotes & Memorable Moments

• [02:25] "Small caps have the best chance of being mispriced because some of the most skilled investors can't look at them." – Steve
• [05:12] “Whoever disrupts that [home buying] is going to be a trillion-dollar company easily.” – Steve
• [15:09] "I bought 4000 shares of Carvana at $3.92… then sold calls at $5… probably the largest investing mistake of my entire life." – Steve
• [40:54] “I personally believe…the vast majority of Portillo's problems is because their chief marketing officer got poached…” – Steve
• [59:31] “Most of the financial metrics once you look past the capex of the growth trajectory are amazing still.” – Steve
• [62:23] “If they start jacking up prices… that would be a structural change… that would be part of the death spiral.” – Steve

Conclusion & Closing Thoughts

• Opendoor: The ultimate high-risk, high-reward play; possible meme stock, possible industry kingmaker.
• Portillo’s: Brand, product, and loyal base in place; execution and marketing will decide if it moves from regional treasure to national juggernaut.
• Steve’s Approach: Relentless hunting for small cap mispricings, willingness to be patient with quality management, especially during macro throes.
• Actionable Takeaways:
  • For Opendoor, watch management moves, innovation, and return of housing activity; expect volatility.
  • For Portillo’s, monitor new store economics, marketing impact, and whether they stick to their everyday value principle.

[01:21] Steve: “If you turn over enough rocks, you find some… amazing treasure. And by being a bit of a generalist and seeing, you know, industry to industry, sometimes you learn things in one industry that helps you in other industries.”

[62:03] Steve: “If you're looking at one of those future, you know, outrageous compounders like people that bought Domino's pizza in the 1990s… I think Portillo's has a chance to reach that sort of outrageous extreme compounding over the next 20 years.”

(Advertising, disclosures, and non-content segments have been skipped as requested.)