Perspective Picks: Upstart

Updated: May 16

Upstart Holdings Inc (NASDAQ: UPST) is a relatively unknown company as it is taking hold of a niche revolutionary industry. Upstart is a lending platform that teams up with banks and other credit facilities to establish credibility for consumer loans beyond the traditional credit score. Upstart develops detailed algorithmic models to incorporate other key demographics such as employment history, education, and cost of living to substantiate a consumer's default risk and give them a better opportunity to be granted a loan. The Company has been gaining some notoriety in the market after its IPO in late 2020 and a meteoric rise and sharp decline from 2021 into 2022.


Fundamentals


Founder & CEO Dave Girourard, graduate of Dartmouth and former executive at Google, has put Upstart in incredible position to become a dominant player in a $6 trillion market over the next decade. The Company earns a fee on the loans underwritten through their bank/lending partners, so the more loans the better. This has posed concern amongst investors in the current economic environment with rising interest rates and fear of a recession. This is true, but it will be a mere pebble compared to the organic growth through new partners and markets that Upstart will achieve. The high-growth fin-tech company is already profitable and continuing to expand from personal lending, to now auto-lending, and soon the mother-load in the trillion-dollar mortgage market. Upstart has grown 264% on the top line from 2020-2021 and is expected to grow another 70% from 2021-2022. This level of growth is hardly ever matched with a profitable company and the growth is only expected to continue as they dive into new lending markets.


Valuation


Upstart has dropped nearly 80% since its all time intraday high of 400$ per share in October. That means the company was valued at $30 billion and is now down to less than $8 billion as of today. With anticipated revenues of $1.4 billion, this high-growth marvel is trading at a mere 5.5x forward revenue. To put that in perspective, Tesla is trading at around a 13.3x revenue multiple. Now, there is usually a size premium for companies the size of Tesla, but with Upstart's 264% growth in the past year, it is a fair comparable. Although Upstart is profitable, it is still investing in its business heavily which eats at their margins so using the P/E ratio isn't a fair statistic at this stage of their life. If Upstart were trading at the same revenue multiple as a growth company such as Tesla, it would trade around $225 which is in the ballpark of the target price of Wall Street Analysts.

Overall, the market has experienced extreme pressure due to skyrocketing inflation, rising interest rates, and concerns over an impending recession. This has put some pressure on Upstart and made it very favorably priced. Perspective Picks considers this a long term bet of 5+ years, so current market conditions must be taken like a grain of salt. We believe this could retest its all time highs within that 5-year period and anything under 100$ per share is a great opening. Be wary that this stock is not for the faint of heart as it frequently experiences double digit % swings.


Opinion

The key here is that you could be getting in at the ground floor of a revolutionary company with a wide realm of growth opportunity. We have taken a long position in Upstart given recent discounted pricing in the market, but are wary this is a very volatile stock. This is not a short term investment by any means. The only true way to take part in a revolutionary company looking to change the accessibility to credit for the average consumer is to get in and hold on for the long haul.



Disclaimer: Perspective Personal Finance does not provide financial advice. This is for educational and interactive purposes only. Please invest at your own risk


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