Upwork price weakness could be a gift for its 5 year growth
Upwork is at fair value now, cheap for next year, and potential could grow to a 50-100$ stock over 5 years.
Upwork is a freelancer marketplace and recently partnered with Open ai (chat GPT) to provide enterprises access to ai freelance experts and learning.
Better value then megacaps:
Upwork roughly has a earnings yield of 3% plus for this year 2023, which is not over yet but coming to a close. This price to earnings of 31 is similar to the megacap stocks like Apple, Microsoft, Google, and Facebook. Thats a high PE for any business, and usually inplies a high growth rate in order to command that premium valuation. Upwork, however, isnt a megacap, has more room to rise, and has a higher growth rate potentially than the megacaps.
Next year 2024:
Next year Upwork is expected to earn 64 cents per share, almost doubling its earnings from this years .37 cents. Using a multiple PE of 25 could land the stock in the 16 dollar range or higher. 25% a year growth in earnings could also command a higher premium if investors anticipate continued year over year growth in the future.
5 year growth potential:
Through 2028, over the next 5 years, analysts believe the stock could grow to 1.90 per share (earnings expectations pulled from seekingalpha). Using the same 25 multiple x the 1.90, we estimate a potential valuation of 47.50 for 2028. As we see today many stocks trading at twice the growth rate for PE multiple, and in order to motivate long term investing, we can estimate a 2x growth rate multiple of 95 potential for 2028. In good times, growth stocks commonly trade at 2x multiple for their growth rates in anticipation of further growth in coming years. So now we have 47.50 and 95 as a potential 5 year upside price.
Low debt and already free cashflow positive:
Many growth or speculative stocks arent even profitable or require too much capital as they scale. Upwork doesnt have that problem, they are already free cashflow positive and have low debt.
8 to 10 price possible in weakness:
Based on its price action this year, and with the help of a weak broad market, it wouldnt surprise me to see upwk fall back to the 10 level or even lower to the 8 price in a major sell off. In that event, the earnings yield on UPWK could go from the 3% range to potentially a near 5% earnings yield for this year 2023. A high 4% or near 5% earnings yield would be very interesting for a stock with 20-25% annual growth potential. The compounding of growth at that price entry would be attractive.
Summary:
Upwork has major growth potential over next 5 years, so keep track of it in case of weakness in the broad market. 50 to 100 in 5 years is possible, so the more it falls now could help open a discount to future value. Hope for a sell off in the 8-10 range.
Upwork is a freelancer marketplace and recently partnered with Open ai (chat GPT) to provide enterprises access to ai freelance experts and learning.
Better value then megacaps:
Upwork roughly has a earnings yield of 3% plus for this year 2023, which is not over yet but coming to a close. This price to earnings of 31 is similar to the megacap stocks like Apple, Microsoft, Google, and Facebook. Thats a high PE for any business, and usually inplies a high growth rate in order to command that premium valuation. Upwork, however, isnt a megacap, has more room to rise, and has a higher growth rate potentially than the megacaps.
Next year 2024:
Next year Upwork is expected to earn 64 cents per share, almost doubling its earnings from this years .37 cents. Using a multiple PE of 25 could land the stock in the 16 dollar range or higher. 25% a year growth in earnings could also command a higher premium if investors anticipate continued year over year growth in the future.
5 year growth potential:
Through 2028, over the next 5 years, analysts believe the stock could grow to 1.90 per share (earnings expectations pulled from seekingalpha). Using the same 25 multiple x the 1.90, we estimate a potential valuation of 47.50 for 2028. As we see today many stocks trading at twice the growth rate for PE multiple, and in order to motivate long term investing, we can estimate a 2x growth rate multiple of 95 potential for 2028. In good times, growth stocks commonly trade at 2x multiple for their growth rates in anticipation of further growth in coming years. So now we have 47.50 and 95 as a potential 5 year upside price.
Low debt and already free cashflow positive:
Many growth or speculative stocks arent even profitable or require too much capital as they scale. Upwork doesnt have that problem, they are already free cashflow positive and have low debt.
8 to 10 price possible in weakness:
Based on its price action this year, and with the help of a weak broad market, it wouldnt surprise me to see upwk fall back to the 10 level or even lower to the 8 price in a major sell off. In that event, the earnings yield on UPWK could go from the 3% range to potentially a near 5% earnings yield for this year 2023. A high 4% or near 5% earnings yield would be very interesting for a stock with 20-25% annual growth potential. The compounding of growth at that price entry would be attractive.
Summary:
Upwork has major growth potential over next 5 years, so keep track of it in case of weakness in the broad market. 50 to 100 in 5 years is possible, so the more it falls now could help open a discount to future value. Hope for a sell off in the 8-10 range.