More Pressure Ahead for WeWork, Despite a Strong Co-working Demand

Stock Market

WeWork (NYSE:WE) stock is down more than 2.51% today at $7.07 per share. The global co-working leader underperformed the market on the day and dipped 24.27% on the year, despite strong co-working demand.

The company’s weak financials and high debt should continue to weigh on the stock in the near term as investors continue to dump unprofitable stocks. WeWork might prove a great investment in the long term, but for now, the downward pressure is unlikely to end.

The co-working space market is projected to grow at a fast clip in the next few years, expected to advance at a compound annual growth rate of 17% in the 2022-2026 period. New working habits arising after the Covid-19 pandemic, including remote working and hybrid work models, are becoming mainstream, sustaining co-working demand.

In this constructive environment, WE stock is expected to grow faster than its inherent market, with net sales expected to bounce 21.8% in 2022 to $4.31 billion.

Despite this robust growth, WE stock is not expected to deliver a profit in the next two years and is projected to deliver a net loss of $1.3 billion in 2022, which should continue to pressure its stock price and its high debt level. Indeed, with net debt of $1.97 billion at the end of 2021, the global co-working leader has a weak financial structure, which is not a good sign in a rising rate environment.

With that being said, investors should not be surprised by WeWork’s stock underperformance over the year. WE stock has cheap valuation metrics of 1.43x forward EV/Revenue and analysts are constructive on the stock, offering a moderate buy rating and an average target price of $9.5 per share.

Nevertheless, the weak financials of the co-working player and the high debt burden will continue to pressure WE stock at least in the short term.

On the date of publication, Cristian Docan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Cristian Docan, a contributor for InvestorPlace.com, has been writing stock market-related articles for Seeking Alpha, Stocknews, and Wealthpop since 2017. He takes a fundamental and technical approach in evaluating stocks for readers, focusing on momentum investing and macro-driven strategies.

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