All was going just fine for gig economy outfit Upwork (NASDAQ:UPWK) in the months following its late 2018 IPO. Priced at $15 per share, the stock raced nearly 50% higher in its first few months on the market. However, the late 2019 sell-off of small, high-octane upstarts has taken its toll on the freelance workforce marketplace, too, and shares are now trading at less than $10, making it a "broken IPO" -- as it trades for less than its debut pricing -- and the price is far from the optimistic outlook investors had a year ago. 

To be fair, there are good reasons for Upwork's sell-off. However, skepticism is beginning to look overdone to me. I'm a buyer at these levels.

A laptop, smartphone, and cup of coffee sitting in front of a window.

Image source: Getty Images.

Breaking down the results so far

After posting revenue of $253 million in 2018 -- good for year-over-year growth of 25% -- and a narrow adjusted net loss of $600,000, Upwork is putting together another solid year. Through the first three reported quarters of 2019, the company is on track to deliver top-line growth of 19%, in line with the guidance provided at the outset of 2019.  

That kind of expansion is nothing to balk at, but such is the world we live in these days. Tech upstarts like Upwork are often expected to exceed guidance, and any hints of a slowdown (which full-year 2019 guidance of 19% growth certainly is) throw up all sorts of red flags for investors in high-growth firms. So despite overall solid results, Upwork is being punished and expectations reset.

Metric

Nine Months Ended Sept. 30, 2019

Nine Months Ended Sept. 30, 2018

Change

Revenue

$222 million

$186 million

19%

Gross profit margin

70.6%

67.4%

3.2 pp

Operating expenses

$167 million

$134 million

25%

Adjusted net income (loss)

$3.72 million

($3.26 million)

N/A

PP = percentage point. Data source: Upwork.  

Of course, the other negative here is that Upwork's expenses remain high as it invests in marketing to promote expansion. While investing back into the business should promote further upside for revenue, the fact that operating expenses have been outpacing the top line could be cause for concern down the road. For now, though, Upwork is making progress on turning the corner on profitability.

Quality growth at a value

And that's what has me eyeing this stock. While 19% growth in revenue doesn't hold a candle to some other companies that made their debut in 2019, it's still a more than respectable result. Given Upwork's near-term expectations for that pace to continue, the stock's big tumble in the last year makes it look like a real value.

As of this writing, Upwork stock trades for less than four times trailing 12-month sales -- a far cry from some of its start-up tech peers that trade in the double-digits. Gross profits are north of 70% and rising as well, bolstering the chances that the company will soon start turning a consistent profit, and the company is also free cash flow positive (money left after cash operating and capital expenses are paid) over the last year, generating $7.1 million through the end of the third quarter of 2019. It's not much, but it's something, and not all fast-growing tech firms can boast having the same situation.  

Of course, my buy thesis is based on Upwork being able to continue delivering double-digit growth, and while big profits aren't expected anytime soon, the company should keep making progress on the bottom line as it expands its marketplace for freelance workers and companies looking to hire them. Shares should be a volatile ride going forward, but at these levels, I think Upwork is just too cheap to ignore.