Shares of Care.com [NYSE: CRCM] plunged in March 2019, after a Wall Street Journal exposé revealed possible safety issues with the platform. But is this 17% loss just a momentary blip for the stock, or is something more serious going on? If you want to know what’s next and what the Care.com stock forecast is, we’ve got you covered!
What is Care.com?
Care.com is an online marketplace that connects families who need household help, including babysitting, senior care, housekeeping, and tutoring, with available providers.
The Care.com website currently has 14 million caregivers offering services to 19 million families in more than 20 countries worldwide.
Founded in 2006 and headquartered in Waltham, Massachusetts, Care.com is currently headed by founder and CEO Sheila Lirio Marcelo. Some of its most prominent competitors include websites such as UrbanSitter, Sittercity, and Caring.com.
The company turns a profit by offering premium monthly subscriptions to its members. This means that caregivers will be ranked more highly in search results, and families can see caregivers’ references and get free background checks.
What are the Risks of Investing in Care.com?
Care.com stock took a major hit in March after the publication of the Wall Street Journal article “Care.com Puts Onus on Families to Check Caregivers’ Backgrounds–With Sometimes Tragic Outcomes.”
The article revealed that Care.com places the responsibility for vetting caregivers firmly in the hands of its users. It highlighted several cases where caregivers had a criminal record or were not licensed to provide care.
CEO Marcelo has previously argued that Care.com is a jobs platform such as LinkedIn or Indeed, which absolves it of the need to verify or interview potential caregivers. However, this line of thought did little to stop Care.com stock from sliding in March, from which it still hasn’t recovered. As of the time of writing, CRCM shares were down significantly from the 2019 high of $25.
What’s more, the WSJ’s report is far from the first time that issues have been raised with security on Care.com [NYSE: CRCM]. For example, in 2016 a woman hired on Care.com pled guilty to first-degree murder after killing the infant in her care, making national headlines.
Due to the risk of negative publicity for the platform, it’s understandable if investors are skittish to put their money in Care.com stock. In addition, the company’s most recent Q1 2019 earnings report was lackluster, reporting a $1 million loss (5 cents per share) despite making a profit in Q1 2018.
However, there’s more to the story than some hard-hitting journalism. In fact, here’s what you might want to buy Care.com shares.
Is Care.com Stock A Buy?
Despite the bad recent PR for Care.com, it’s not crazy to believe that the stock is undervalued. After all, other platforms such as Facebook [NASDAQ: FB] and Craigslist also play host to scammers, fraudsters, and other cyber criminals.
To the credit of Care.com, the company has responded swiftly and forcefully to the WSJ article. In May, it announced that it would rework its business model in order to include detailed background checks and other screening procedures.
While this will certainly add more costs and overhead to the business, it may also avoid the bigger risk of another disastrous headline that paints the platform as fundamentally unsafe.
Examining Care.com’s track record over the past several years, there’s good reason to be optimistic about the stock’s future, because the company has doubled its earnings over this time period. Care.com [NYSE: CRCM] also has sufficient cash flow to handle its upcoming liabilities, and is currently operating without debt.
Care.com’s balance sheet is strong, which is a good sign for the future. With no debt, the company can more easily keep growing at its current rapid pace.
One more reason to believe that Care.com shares are undervalued? The stock’s price-to-sales ratio. As of April 2019, the company’s competitors had an average P/S ratio above 8, which is much less impressive than Care.com’s own ratio of roughly 2.9.
Care.com Stock Forecast: The Bottom Line
Care.com [NYSE: CRCM] is a market leader among online caregiving platforms, but all that attention may not be such a good thing. The recent negative media attention has brought some issues with the company into sharp focus. This is a shaky time for Care.com as it works to overhaul the platform in order to improve the safety and security of its users.
With the exception of Q1 2019 (when it grew continually until the WSJ article), the company’s stock price over the past year has been fairly flat, punctuated only by a few sharp drops.
The potential for growth is certainly there, given the fact that the stock reached a five-year high in March 2019 before the WSJ article was published. However, it remains to be seen how the upheaval in Care.com’s business model will affect its profitability and reputation.
#1 Stock For The Next 7 Days
When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.
Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.
See The #1 Stock Now >>The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.