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One growth stock that has underperformed in recent years is the self-employment platform Working up (NASDAQ: UPWK). After shooting up during the pandemic (when the 'gig economy' was flying), the stock is down about 85%.
Now, as an Upwork investor (I view it as a 'moonshot' speculative growth stock), I am obviously disappointed by this poor performance. However, I believe the stock is capable of rebounding.
And apparently I'm not the only one with this opinion.
Activist investor on board
One hedge fund that sees value in the stock right now is activist investor Engine Capital (a value-focused special situations fund). It announced last week in an open letter that it has taken a 3.5% stake in the small-cap company.
It thinks that Upwork has a lot of unrealized potential. And believes that the stock is currently “seriously neglected“.
We invested in Upwork because of its promising position as the world's largest job marketplace, its significant market potential given the growing adoption of remote work, its potential to meaningfully disrupt the staffing solutions industry, and our belief that the company is highly undervalued.
Capital Engine
Looking ahead, Upwork wants to see:
- Improve the basic functioning of the freelance market place
- Focus on business customers (large organizations)
- Adjust its cost structure
- Also buy junk stocks
- Tighten the board
- Align superior compensation to creating shareholder value
The investment firm believes that “the greater the number of shareholders” can be opened if the Upwork board is working urgently to make the necessary changes.
My opinion
Now, as an Upwork investor and a long-time user of their freelance platform, I have to say that I think Engine Capital's ideas are great. I honestly believe that Upwork has a lot of potential from an investment perspective but, right now, it feels like management is in the lead.
And I agree with Engine Capital about Upwork's valuation. Since the company currently trades at a forward price-to-earnings (P/E) ratio of 9.5 (about half of the US market average), I think this stock is undervalued. It is worth noting that revenue continues to grow at a healthy pace (last year it was up 11%). Given the top-line growth rate, there is a very high valuation opportunity here.
Risks vs reward
We must point out that even if Upwork's management were to implement all the strategies proposed by Engine Capital, this company may still face challenges in the coming years.
First, there is the threat of Artificial Intelligence (AI). This can eliminate many tasks in the Upwork environment (writing, coding, graphic design, etc.). Then, there is competition from competitors like Fiverr and Toptal.
I remain optimistic about the company's long-term prospects, as I think the gig economy will grow exponentially in the coming years.
Ultimately, I see a lot of investment opportunities here.
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