Upwork Inc (UPWK, Financial) has recently experienced a daily loss of -5%, but over the past three months, the stock has gained 33.26%. Despite a Loss Per Share of 0.5, the question remains: is the stock significantly undervalued? This article delves into a valuation analysis of Upwork, providing an insightful exploration of its intrinsic value for potential investors.
Company Overview
Upwork Inc is a United States-based company that operates an online marketplace enabling businesses to find and work with highly-skilled independent professionals. The company offers a platform for hiring and freelancing purposes, with products including Upwork Basic, Upwork Plus, Upwork Business, Upwork Enterprise, and Upwork Payroll. Upwork generates revenue from Talent and Clients across the USA, India, the Philippines, and the rest of the world, deriving substantial income from providing services to clients.
Currently, Upwork's stock price stands at $11.96 per share, with a market cap of $1.60 billion. However, the GF Value, an estimation of the stock's fair value, is $28.21. This discrepancy suggests that Upwork's stock could be significantly undervalued.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should be traded.
According to GuruFocus Value calculation, Upwork's stock appears to be significantly undervalued. As the stock is trading significantly below the GF Value Line, its future return is likely to be higher. This suggests that the long-term return of Upwork's stock is likely to be much higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is essential to review a company's financial strength before deciding to buy shares. Upwork has a cash-to-debt ratio of 1.4, which ranks better than 54.53% of 1049 companies in the Business Services industry. Based on this, GuruFocus ranks Upwork's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Upwork has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $649.60 million and Loss Per Share of $0.5. Its operating margin is -11.87%, which ranks worse than 87.01% of 1062 companies in the Business Services industry. Overall, the profitability of Upwork is ranked 3 out of 10, which indicates poor profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Upwork is 20.1%, which ranks better than 84.69% of 980 companies in the Business Services industry. The 3-year average EBITDA growth is -136%, which ranks worse than 99.65% of 849 companies in the Business Services industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Upwork's return on invested capital is -43.42, and its cost of capital is 9.23.
Conclusion
In summary, the stock of Upwork (UPWK, Financial) appears to be significantly undervalued. The company's financial condition is fair, and its profitability is poor. Its growth ranks worse than 99.65% of 849 companies in the Business Services industry. To learn more about Upwork stock, you can check out its 30-Year Financials here.
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