One growth stock that’s performed very poorly in recent years is freelance employment platform operator Upwork (NASDAQ: UPWK). After surging during the pandemic (when the ‘gig economy’ was flying), the stock’s fallen by around 85%.
Now, as an investor in Upwork (I view it as a speculative ‘moonshot’ growth stock), I’m obviously disappointed with this abysmal performance. However, I believe the stock’s capable of staging a rebound.
And I’m clearly not the only one with this view.
Activist investor on board
One hedge fund that sees value in the stock right now is activist investor Engine Capital (a value-oriented special situations fund). It announced last week in an open letter that it’s taken a 3.5% stake in the small-cap company.
It reckons Upwork has a great deal of potential that’s not being realised. And it believes the stock’s currently “deeply undervalued“.
We invested in Upwork because of its promising position as the world’s largest work marketplace, its significant addressable market given the growing acceptance of remote work, its potential to meaningfully disrupt the workforce solutions industry, and our belief that the company is deeply undervalued.
Engine Capital
Looking ahead, it wants to see Upwork:
Improve the basic functionality of its freelancer marketplace
Focus on enterprise clients (large-scale organisations)
Optimise its cost structure
Buy back undervalued shares
Strengthen the board
Align executive compensation to shareholder value creation
The investment firm believes that a “tremendous amount of shareholder value” can be unlocked if Upwork’s board acts with urgency to make the necessary changes.
My view
Now, as both an investor in Upwork and a long-term user of its freelance platform, I have to say I think Engine Capital’s ideas are excellent. I genuinely believe that Upwork has so much potential from an investment perspective but, right now, it feels like management’s asleep at the wheel.
I also agree with Engine Capital in relation to Upwork’s valuation. With the company currently trading on a forward-looking price-to-earnings (P/E) ratio of just 9.5 (about half the US market average), I think this stock’s extremely undervalued. It’s worth noting that revenue continues to grow at a healthy pace (last year it climbed by 11%). Given the level of top-line growth, there’s potential for a much higher valuation here.
Risks vs reward
It’s worth pointing out that even if Upwork’s management was to implement all the strategies proposed by Engine Capital, the company’s still likely to face challenges in the years ahead.
For starters, there’s the threat of artificial intelligence (AI). This could actually eliminate a lot of the jobs on the Upwork platform (writing, coding, graphic design, etc). Then, there’s competition from rivals such as Fiverr and Toptal.
I remain optimistic in relation to the company’s long-term prospects though, as I reckon the gig economy’s only going to get bigger in the years ahead.
Ultimately, I see a lot of investment potential here and think it’s worth considering.
The post Down 85%, this growth stock’s been described as ‘deeply undervalued’ appeared first on The Motley Fool UK.
Should you invest £1,000 in Upwork right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Upwork made the list?
See the 6 stocks
More reading
Is it time I finally sink my teeth into Greggs shares?
If the stock market crashes, these are the first two shares I’d buy!
Down 50%! Is this famous FTSE 250 car maker a recovering bargain or a lost cause?
Why this S&P 500 stock looks tasty after unexpected good news
How will FTSE shares react to today’s Fed rate cut decision in the US?
Edward Sheldon has positions in Upwork. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
