While coworking space provider WeWork (NYSE:WE) appears to be on the cusp of an ugly implosion, its shares lit up the options chain as meme traders inexplicably jumped on the opportunity. To their credit, the company’s market value skyrocketed within a span of 48 hours. At the same time, investors really need to focus on the fundamentals, which frankly don’t bode well for the business. Therefore, I am bearish on WE stock.
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WE Stock Faces an Incredibly Bleak Future
On August 9 – just one day before WE stock went on a blistering northbound run – TipRanks reporter Sheryl Sheth warned that the underlying company faces a bleak future. Glaringly, management cited “substantial doubt” over the viability of the business, moving forward.
WeWork warned market participants about its continuity as a “going concern” should it fail to address current challenges. “The company is facing increased member churn, excess supply of commercial real estate, heated competition in the flexible office space, and concerns stemming from macroeconomic uncertainties,” wrote Sheth. In addition, WeWork stated that these factors contributed to a “slight decline” in memberships.
Perhaps most worryingly, “WeWork is burdened with liquidity issues caused by growing company losses and projected cash needs.” To be fair, if the company can spark improvements in its financial profile by next year, the coworking space provider might have an outside shot of continuing as an operational entity.
Still, it has its work cut out for it, especially following its disappointing second-quarter earnings results. “WeWork reported a diluted loss of $0.21 per share, worse than analysts’ expected loss of $0.12 per share. Meanwhile, quarterly revenue came in at $844 million, up 3.6% year-over-year but lower than the consensus of $850.15 million,” reported Sheth.
Notably, the office space operator’s physical occupancy in Q2 stood at 72%. While it’s an improvement over Q2-2022’s 70%, it slipped 1% sequentially from Q1. Naturally, it’s a poor look for WE stock.
WeWork’s Options Chain Lights Up
Despite the ugly implications of WE stock, what caught many observers by surprise was the robust interest in shares. Last Thursday and Friday, WeWork jumped significantly higher, first closing at 18 cents (compared to the midweek session’s close of 13 cents) and later at 20 cents. Undergirding the sentiment was unusual activity in its options chain.
Data from TipRanks for the expiration date of August 18, 2023, shows that the total volume for available call options hit 6,681 contracts on Friday against an open interest reading of 19,217. On the other side of the equation, put volume reached only 258 contracts against an open interest of 704.
Regarding unusual options volume, following the August 10 session, volume hit 224,834 contracts against an open interest of 95,135. For that session, the put/call volume ratio sat at 0.02, overwhelmingly targeting transactions involving call options.
It was a similar situation once the August 11 session ended, which saw total volume land at 39,687 contracts against an open interest of 240,503. Here too, trading activity targeted calls, though at a lesser magnitude, with a put/call volume ratio of 0.05.
However, it may be inaccurate to classify the above activity as leaning heavily bullish, which is why caution is warranted for WE stock. Options flow data for the Thursday and Friday sessions indeed shows significant interest in calls. However, the activity swung back and forth between bought calls (which imply bullish sentiment) and sold calls (which imply bearishness).
Subsequently, it’s more than possible that the bears can eventually take control of WE stock. It is, after all, a deeply-troubled enterprise.
A Small Saving Grace
Back in early November 2022, TipRanks reporter Michael Marcus noted that at the time, WE stock carried a Strong Buy consensus view. Fundamentally, some contrarians stated that demand for flexible workspaces has been surprisingly resilient following the COVID-19 crisis. Therefore, they reasoned that the corporate pivot away from traditional office lease strategies may provide a long-term tailwind.
That’s one way of looking at WE stock. Further, the issue of a lack of oversight and accountability – in other words, the fear of the time theft problem – may cause enterprises to implement return-to-office policies. Theoretically, such a backdrop could help WeWork’s business.
Still, the dilemma is that these tailwinds are materializing far too slowly for WE stock. Honestly, WeWork has no time to lose.
Is WE Stock a Buy, According to Analysts?
Turning to Wall Street, WE stock has a Hold consensus rating based on one Buy, three Holds, and zero Sell ratings. Amazingly, the average WE stock price target is $2.00, implying 925.6% upside potential.
The Takeaway: Use Sound Judgment with WE Stock
To be sure, the idea of a meme sparking in WE stock tempts a speculative outlook. Investors know that even short bursts of irrationality can yield significant gains. However, the granularity of the options chain reveals a much more contested arena than mere activity screeners reveal. For that and the underlying fundamental vulnerabilities, investors should consider staying away from WE stock.
