From $47 billion to nearly worthless. That is the sad tale of WeWork (NYSE:WE), the co-working company and former unicorn darling of Silicon Valley. WeWork filed for Ch. 11 bankruptcy protection on Monday night.
It’s been a stunning fall from grace for the company, co-founded by the enigmatic Adam Neumann. WeWork attracted a lot of hype, and the company was once the world’s most valuable startup firm, attracting investments from SoftBank and others. Adam and his wife Rebekah have been profiled already in several books, an Apple TV+ series and a Hulu documentary.
But shares of WeWork, which belatedly went public through a SPAC merger in 2021 after abandoning plans for a more traditional initial public offering in 2019, are currently worth just 84 cents. The stock was halted for trading Monday morning due to speculation about an imminent bankruptcy announcement. WeWork’s market valuation is now a mere $44 million. It could go lower still.
If WeWork shares start trading again, investors should avoid WE stock at all costs.
There is no reason to make a speculative bet on the stock, considering that existing shareholders will almost certainly have their investments wiped out during the Ch. 11 process. Bondholders and other creditors are first in line to get paid during bankruptcy proceedings.
You might be wondering why I even need to remind people to steer clear of shares of a bankrupt company.
But, in this r/WallStreetBets day-trading world that we apparently now live in, some investors have bought shares of bankrupt companies with the hope of making a quick buck.
Unless you time the trades exactly right, it’s a fool’s errand. Just look at what happened to shares of other high-profile companies that went bankrupt recently: Bed Bath & Beyond, trucking firm Yellow (OTCMKTS:YELLQ) and JCPenney are just a few examples of companies that were delisted from major exchanges after filing for bankruptcy. Drug store chain Rite Aid (OTCMKTS:RADCQ) was also recently delisted from the New York Stock Exchange after filing for bankruptcy last month. Shares have since plunged from 65 cents to 25 cents.
Yes, there could be a faint of glimmer of hope for WeWork investors. Rental car giant Hertz (NASDAQ:HTZ) filed for bankruptcy a few years ago and actually struck a deal with private equity firms that allowed investors in the stock to get back some of their money in cash as well as shares of the newly reorganized company. Still, that’s an exception in the world of bankruptcy, not the rule. It’s also worth noting that Hertz didn’t miraculously become a healthy company after bankruptcy either. Hertz shares have plummeted more than 65% since the stock was relisted in November 2021.
The Bottom Line on WE Stock: Stay Away
WeWork may in fact survive, albeit as a much smaller company. That could be good news for some tenants and anyone who has lent the struggling company money. But investors still holding on to WE shares should probably abandon ship.
The Securities and Exchange Commission has a clear warning to stock owners in bankrupt companies. “Although a company may emerge from bankruptcy as a viable entity, generally, the creditors and the bondholders become the new owners of the shares. In most instances, the company’s plan of reorganization will cancel the existing equity shares.” And in case you were wondering, it was the SEC put that last sentence in bold for emphasis. Buyer beware, indeed.
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As of this writing, Paul R. La Monica did not hold (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.