The shares of Upstart Holdings (NASDAQ:UPST) have had an impressive price rally so far this year. However, the stock retreated last week after the company reported its third-quarter earnings. Its business strength and accelerated adoption of digital finance over the past months should support UPST’s long-term growth. But, considering the company’s stretched valuation, is the stock an ideal buy in its recent dip? Read on.San Mateo, Calif.-based Upstart Holdings, Inc. (UPST) operates a cloud-based artificial intelligence (AI) lending platform that aggregates consumer demand for loans and connects it to its network of AI-enabled bank partners. The stock has garnered significant investor attention so far this year. UPST shares have rallied 473.7% in price year-to-date on the back of substantial earnings growth. However, the stock slumped 18% on November 10 after the company reported its third-quarter results. Over the past month, UPST has lost 39.5% in price to close yesterday’s trading session at $236.01. It is currently trading above its 200-day moving average but below its 50-day moving average.
UPST failed to impress investors despite reporting substantial year-over-year growth in revenues and earnings that beat analyst estimates. Piper Sandler’s Arvind Ramnani accredited the stock’s selloff primarily to “elevated investor expectations and lack of quantification of its auto opportunity.”
In addition, the stock is currently trading at a lofty valuation. In terms of forward P/E, UPST is currently trading at 229.76x, which is 1,915.1% higher than the 11.40x industry average. Also, its 31.25 forward Price/Book ratio is 2,331.4% higher than the 1.29 industry average. And UPST’s 11.18x trailing-12-months PEG is 5,460.5% higher than the 0.20x industry average. Citing the lofty valuation, John Hecht of Jefferies (NYSE:JEF) Group LLC downgraded Upstart to Hold.