Already one of the top performers of last week, the idea of banking on Upwork (UPWK) to rise even higher seems quite risky. It’s like baseball – hot streaks eventually end (usually at an inopportune time). Nevertheless, both sentiment in the options market along with credible fundamental catalysts suggest that for contrarian traders, UPWK stock may be worth a look.
UPWK Stock Flies on Q2 Earnings
Primarily, the main source of propulsion for UPWK stock centered on the underlying company’s second-quarter earnings report. Though it reported a loss for the three months ended June 30, investors took encouragement at the possible path to sustained profitability.
According to the AP, Upwork posted a loss of $4 million in Q2, translating to a loss of 3 cents per share. When adjusted for one-time gains and costs, earnings came out to 10 cents per share. On the top line, the online freelancer market platform rang up sales of $168.6 million, beating the consensus estimate of $162.7 million.
Looking ahead to the current quarter ending Sept. 30, management anticipates earnings per share to range from 9 cents to 11 cents. Further, the leadership team forecasts revenue to hit between $165 million to $170 million.
To be fair, Barchart content partner The Motley Fool (TMF) mentioned that the news wasn’t all that impressive. “Gross services volume (GSV), the value of all the work done by freelancers for clients on Upwork in the quarter, again exceeded $1 billion in the quarter. But Upwork's share of that GSV generated $168.6 million in revenue, up only 7% year over year.”
Still, Upwork laid the foundation for possible future success. “Upwork succeeded in growing its gross profit margin by 2 full percentage points, to 76%. And it cut its operating spending as a percentage of revenue by 10 percentage points, bringing the company markedly closer to profitability.”
Before anyone gets too excited, Upwork suffers an uphill battle. Glaringly, UPWK stock trades at a forward earnings multiple of 36.9. However, the average median forward multiple for the business and consumer services space sits at 21.37.
Put another way, you want to be prudent with your exposure to UPWK stock. Still, with shares up nearly 38% in the week ended Aug. 4, retail investors clearly made their feelings known. Even better, the derivatives market is even more exciting.
Upwork Attracts Unusual Options Activity
Impressively, UPWK stock gained just under 3% last Friday, with investors broadcasting their view that the rally represents no flash in the pan. Further, rumblings in Barchart’s screener for unusual stock options volume suggests that traders see both short and long-term opportunities with the freelancer marketplace operator.
Following the close of the Aug. 4 session, total options volume for UPWK stock reached 14,814 contracts against an open interest reading of 47,118. Further, the delta between the Friday session volume and the trailing one-month average metric came out to 353.3%.
Moving down the informational column, call volume hit 11,392 contracts while put volume landed at 3,422. This pairing yielded a put/call volume ratio of 0.30, favoring the bulls. However, the put/call open interest ratio clocked in at 0.93.
Specifically, the most unusual activity within the derivatives market for UPWK stock from the perspective of volume-to-open-interest (Vol/OI) ratios was the $22.50 call with an expiration date of Jan. 17, 2025. Here, the Vol/OI hit 64.75X.
The most unusual activity for puts was the $17.50 contract with an expiration date of Aug. 18, 2023. In this case, the Vol/OI ratio reached 9.14. Overall, Barchart recorded significant activity for contracts with expiration dates within 41 days to expiration since the time of writing (close of Aug. 4).
Notably, analysts remain overall bullish on UPWK stock. Presently, shares have a moderate buy consensus view, breaking down as six strong buys, one moderate buy and three holds. However, the mean price target for UPWK sits at $11.73, which now represents about 21% downside risk. Still, the high-side target is $17, which would be good for nearly a 15% gain.
Fundamentals Appear Compelling for UPWK
While it’s not unusual for traders to jump aboard the flavor of the week, Upwork – despite its flaws – offers an arguably comprehensive opportunity. For short-term traders, they can bank on the newfound momentum of UPWK stock, along with it attracting mostly optimistic options market participants. For patient buy-and-hold types, shifting conditions in the workplace should bolster the freelance platform.
First, while it’s an unpopular and likely minority opinion, I believe companies will continue recalling their employees, thus implementing pre-pandemic workplace norms. True, many remote workers bitterly complain about their increased productivity at home. However, the rise of time theft incidents combined with employers’ natural skepticism should end the remote-work experiment.
If so, don’t expect the recalled to just give up on life. Instead, many will expand the ranks of the gig economy.
Second, several corporations might actually prefer freelance (gig worker) arrangements. Cynically speaking, companies who contract freelancers to conduct certain functions or operations don’t owe them anything other than payment for services rendered.
Relationships with independent contractors also facilitate fewer headaches. For example, other than narrowly defined wrongful actions as specified by 42 U.S. Code Section 1981 – under the Civil Rights Act of 1866 – contract-issuing enterprises can get away with a lot more than matters governed by employer-employee relationships.
All this serves to bolster Upwork and its newfound momentum. So while UPWK stock may be overvalued on paper, it just might need a reevaluation.
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