Upstart Holdings Inc (NASDAQ:UPST) defines its mission as “providing people with the credit they deserve, without all the hassle.”
Traditional lenders are limited in their ability to quantify risk because they fail to take into account all of the factors at play. Upstart is a lending platform that uses artificial intelligence (AI) to revolutionize the lending process.
By utilizing Upstart's AI-driven technology, banks can offer higher approval rates and experience lower loss rates. Moreover, they can deliver an excellent digital lending experience. (See Upstart stock charts on TipRanks)
Upstart reported $194 million in revenue this past quarter, a 1,018% increase year-over-year. The organization was able to bring in $36.3 million from operations, compared to a $11.4-million loss in Q2 2020. The company facilitated over $1 billion worth of vehicle sales for clients during Q2 2021 alone.
Additionally, five banks have partnered with Upstart, making the auto-lending process seamless for consumers looking to buy or lease cars. In the second quarter of Fiscal Year 2021, Upstart's dealership footprint increased by 24%.
Valuation
While Upstart is enjoying strong growth momentum, its rich valuation requires significant future growth to provide satisfactory total returns to current investors. For example, the market is currently pricing the company at 17.5x forward sales and 32.2x trailing 12-month sales.
That said, revenue is expected to soar by 212.9% in 2021 and 33.1% in 2022. Earnings per share are expected to surge by 479.6% in 2021 and grow by 16.1% in 2022.
Wall Street’s Take
From Wall Street analysts, Upstart earns a Strong Buy consensus rating based on 7 unanimous Buy recommendations in the past three months. That said, the average UPST price target of $189 puts the downside potential at 5.9%.
Summary and Conclusions
Upstart Holdings is enjoying rapid revenue growth thanks to its innovative lending platform.
However, despite general Wall Street bullishness on the stock at current prices and a robust growth outlook, investors should keep in mind that the current valuation does require significant growth for the foreseeable future to be justified. As a result, any position taken in the stock should be sized accordingly.
Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.