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Is Upstart Holdings Worth Your Attention?
Stock Analysis & Ideas

Is Upstart Holdings Worth Your Attention?

Upstart Holdings (NASDAQ: UPST) is a young fintech company that uses cloud-based artificial intelligence (AI) to provide loans to consumers using non-traditional variables, such as education and employment.

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It partners with banks and credit unions for the same. It connects all stakeholders: Consumers, banks, and institutional investors through its shared AI lending platform, and helps in predicting the creditworthiness of its loan clients for a fee.

It has been one of the best performing stocks of 2021. Since its debut in December 2020, the stock has gained a massive 252.5%. It has beaten the revenue and earnings expectations of multiple analysts.

December 2021 has been quite brutal for the company, with its stock losing about 61% of its value from all-time highs. The stock is also seeing a massive change of hands these days and has entered into the oversold space.

Upstart Holdings is able to approve 27% more borrowers as compared to the traditional approval methods followed by financial institutions, and the loan defaults are also 48% lower compared to the normal default rates. An internal study found that its algorithm had 75% fewer defaults on the same amount of loans approved compared to larger banks. 

An increasing number of lenders have been considering the Upstart platform these days for making more informed lending decisions. The company’s unique AI-based approval methodology has immense growth potential.

Fintech: An Emerging Business

Fintech is an emerging industry that has been a hot investment theme, especially since the last two years. The term fintech means the integration of the latest technology into offerings made by financial services companies for improving their use and delivery to consumers.

Upstart Holdings is one of those demanding fintech companies as it uses machine learning and artificial intelligence for its loan determination process.

Digital payments and banking services are slowly becoming the norm these days. The rising demand for digital payments coupled with increased investments in technology-based solutions and supportive government regulations have given the fintech industry a significant boom.

As the younger generations born and raised in front of digital screens start to mature, this trend will gain further momentum. It is said the Global Fintech Market that was valued at $7.3 trillion in 2020, is expected to grow at a CAGR of 26.87% till 2026. 

Upstart’s growth runway is extremely large. The company is targeting a $5-trillion market for itself, and its investments in the engineering and development fronts, as well as the sales expenses, seem to be commensurate with the market share it intends to gain in the coming times.

Strong Financials

Upstart has delivered good numbers and has been improving its performance over the years.

During the third quarter of 2021, the company originated 362,780 loans, around 244% higher compared to last year. As a result, its revenue also grew 250% during the three-month period, reaching $228 million. Within the first nine months of this year, the company’s revenues grew over 270% and the free cash flows also reached the $170-million mark. 

However, the market is not confident whether the company will be able to maintain the same pace of growth in 2022, but it is for sure that the company is on a run to expand into a multi-trillion dollar per year lending industry. 

The Tipranks’ Stock Investors Tool indicates five out of nine Analysts have given Upstart Holdings a Buy Rating and three have suggested a Hold on its shares. The remaining one of them has however suggested a Sell.

The average Upstart price target of $258.89 represents an upside of 66.6% on the stock.

Diverse Market

Having a diverse customer base is one of the prerequisites for attaining sustainability, and Upstart has been slowly moving towards diversifying its customer portfolio.

The company has brought immense success in the AI-based credit-checking process through its innovative solutions and therefore, the number of banks it was servicing previously has almost tripled since the beginning of this year.  

Earlier, a major chunk of the company’s loan volume was tied to a single bank only. Now the situation is changing for this fintech company, and the this is clearly evident from its financials. While at the beginning of 2020 it was found that 72% of the company’s loan volume was tied to a single customer, that number has now come down to 58%.

Bottom Line

Upstart Holdings is a quality stock that is currently trading at a discount. The company has successfully managed to grow all parts of its business, along with reducing customer concentration.

Moreover, the market at large has been selling off many tech stocks over the past two months and Upstart just like others is also facing the same fate.

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Disclosure: At the time of publication, Hashtag Investing did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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