The Stock of Bankrupt Wework Pulls Back, Continuing Its Rollercoaster Ride

Shares of troubled WeWork Inc. retreated by 20.7% in premarket trading on Monday, following a 23% increase in Friday's session.

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WeWork, facing financial challenges, experienced a significant boost in its stock during its over-the-counter (OTC) debut last week, shortly after filing for Chapter 11 bankruptcy protection on November 6. The stock, listed as WEWKQ, soared on its OTC debut despite the bankruptcy filing. The New York Stock Exchange initiated the delisting process for WeWork on the same day as its Chapter 11 filing.

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Trading recommenced over the counter on Wednesday, and WeWork shares concluded their initial session as an OTC stock with a 91.5% increase, continuing the unusual trend of a "bankruptcy bounce."

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A similar occurrence took place when Bed Bath & Beyond Inc. transitioned to OTC trading in May after Nasdaq initiated the delisting process for the bankrupt home-goods retailer. Bed Bath & Beyond's stock, despite its documented difficulties, surged by 30.4% on its first OTC trading day. Bed Bath & Beyond's shares were later canceled in September.

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WeWork's bankruptcy was anticipated by the independent equity-research firm New Constructs, which identifies "zombie" stocks at risk of declining to zero per share. New Constructs CEO David Trainer remarked on WeWork's situation, emphasizing the seriousness of assigning valuations to unprofitable companies. He highlighted WeWork's bankruptcy as emblematic of recent years' excess liquidity, easy money policies, and reckless investor behavior, urging investors to scrutinize their holdings, particularly unprofitable companies with poor business models.

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WeWork had initially planned to go public through a traditional IPO in 2019 but ultimately went public through a merger with special-purpose acquisition company BowX Acquisition Corp. in 2021.

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Cole Smead, CEO of Smead Capital Management, commented on WeWork's rise and fall, characterizing it as a reflection of the end of a period of significant financial euphoria in U.S. history. Smead emphasized the cyclical nature of financial markets and cautioned that despite grand plans, market dynamics can lead to significant downturns.