Should you buy Upwork stock after the latest upgrade by RBC?

Upwork Inc. (NASDAQ:UPWK) is one of the beaten-down stocks this year. The stock is down -47.39% year-to-date, more than a drop of 28% for the Nasdaq-100 composite. However, last month, RBC Capital Markets reiterated Upwork with a sector performance rating. The analyst gave a $21 per share price target, an upside potential of 23.5% from the current $17 price.

Digging deeper into Upwork, we find that it has a huge addressable market for online freelancing. The company acts as a marketplace for connecting businesses seeking services from professionals. Upwork boomed during the pandemic to hit $63 in February 2021. However, it has since failed to replicate gains and has come crashing this year.

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In its rating upgrade, RBC cited the underpenetrated market as a potential growth trigger for Upwork. The analysts see a potential of $50 billion to $150 billion. However, customer acquisition costs and competition were cited as headwinds.

Nonetheless, the analysts say that customer acquisition costs are now better reflected in the stock. RBC says Upwork issues stem from the challenges of an early phase of market penetration.

This thesis recognizes that Upwork is operating in a relatively virgin market segment. We also find that as labor shortages continue to hit global entities, Upwork should be reaping big.

However, this is not the case. Firms remain skeptical in their mode of hiring, and Upwork’s potential remains muted. We feel Upwork may need further market spending to show its potential to big recruiters. This may come as a detriment to the short and medium potential of the stock. At this point, we don’t recommend a buy as more downsides are possible.

Upwork remains under pressure at key support

Technically, Upwork is bearish at key support of $17. We expect the price to break lower as the stock lacks the catalyst to go higher. We do not recommend a buy despite the low valuation.

Summary

Upwork may continue to bleed as the nascent industry takes time to earn recognition. Investors should avoid the stock until further catalysts for growth.

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