WeWork’s meme-stock status is irrational, but shares have surged since solvency warning.

WeWork's meme-stock status is irrational, but shares have surged since solvency warning.

The Wild Ride of WeWork: A Rollercoaster of Stocks and Speculation

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Thursday was a day of wild swings for WeWork, the coworking giant that has experienced its fair share of ups and downs. The stock surged as high as $0.33 before eventually closing at $0.18. This sudden spike in value was further amplified by a flurry of options activity. Surprisingly, bullish options on the stock outnumbered bearish bets by over 100 times. The three most active options were $0.50 calls for various expiration dates, indicating a strong belief in the company’s future prospects.

The recent rally shares similarities with other struggling firms such as Tupperware, Revlon, and Hertz, which all experienced eye-popping rallies despite facing uncertainty. It seems that when faced with potential financial instability, these companies have managed to captivate the interest and speculative optimism of investors.

However, it’s important to note that despite the rebound, WeWork’s shares have still plummeted over 95% since its trading debut in 2021. This staggering decline has erased more than $11 billion in market value. It’s clear that WeWork has endured its fair share of challenges, including a battered real estate market and the departure of its chief executive.

Interestingly, unlike the classic meme stock rallies, WeWork doesn’t have excessive short interest. In the past, retail investors have targeted stocks with high short interest, forcing short sellers to buy back shares and driving up prices. But in the case of WeWork, bearish interest has been steadily declining, with short interest falling to its lowest level since February 2022.

Despite the recent surge in stock price, betting on WeWork’s equity at this point carries significant risks. The company has warned about a potential existential threat, making it an especially risky investment. In the event of a company going bust, equity investors often end up with nothing. This scenario seems plausible, given the action in the company’s bonds.

WeWork initiated a distressed exchange earlier this year, allowing bondholders to swap old notes for new ones. The newly issued first lien senior secured instruments, due 2027, carry a highly risky CCC+ rating. The current trading price of these bonds indicates a bleak outlook, with last recorded trades at 52.5 cents on the dollar. Clearly, bond traders are not confident about being paid in full, leaving little hope for recovery for common shareholders.

It’s crucial for investors to be aware of the significant risks associated with investing in WeWork. While the recent surge may be enticing, it’s essential to consider the long-term viability of the company and the potential for significant losses. As always, thorough research and cautious decision-making are vital in navigating the volatile world of stocks and speculation.

With Elena Popina, Bailey Lipschultz, Michael Tobin, and David Marino