Upstart Holdings (UPST) is one of those red hot stocks that went through the roof in 2021. Shares of this AI (artificial intelligence)-based lending platform listed on the NASDAQ on December 16, 2020, and have headed north since then. While its stock has already gained quite a lot, I maintain a bullish outlook on Upstart, and there are good reasons for that.
Notably, Upstart stock has grown more than 10 times from the IPO price of $20. Meanwhile, it has increased about 398% this year. (See Upstart Holdings stock charts on TipRanks)
Upstart’s robust financial performance, upbeat guidance, stellar transaction volumes, and improved conversion rate are the reasons behind the massive growth in its stock price. Furthermore, this fintech is already profitable, and its contribution margin remains elevated, supporting my bullish stance.
So far this year, Upstart’s revenue growth rate has accelerated sequentially and on a year-over-year basis, reflecting higher lending volumes. Equally important is its revenue mix. Upstart derives approximately 97% of its revenue in the form of fees from banks or loan servicing that have zero credit exposure, which is encouraging.
Its conversion rate improved to 24% during the most recent quarter, compared to 22% in Q1 and 9% in the prior-year period. Meanwhile, the company once again raised its 2021 outlook. It now expects to report revenue of $750 million, up from its previous guidance of $600 million.
Buoyed by Upstart’s solid financial performance and upbeat outlook, Nat Schindler of Bank of America Securities raised his revenue, EBITDA, and EPS estimates for Q3, 2021, and 2022.
The analyst added, “We see Upstart’s significantly higher growth rate vs. industry as further proof of Upstart’s ability to disrupt the rigid and outdated personal lending process.” Additionally, the analyst expects its Prodigy platform to boost “Upstart’s expansion into the adjacent TAM (total addressable market) of Auto loans (~$635bn vs. personal loan at ~$84bn).”
Upstart announced the acquisition of Prodigy Software, a cloud-based automotive retail software provider, in March 2021, as an effort to expand into the auto loans segment. Management highlighted that in Q2, it sold more than $1 billion in vehicles through Prodigy.
Schindler wrapped up by saying, “We are constructive on better than expected profitability as well as earlier than an expected positive update on Prodigy Auto loans.” He has a Buy rating on Upstart Holdings, and increased his price target to $200 (1.5% downside potential) from $135.
On TipRanks, Upstart has received 7 positive analyst reviews for a unanimous Strong Buy consensus rating. With over 389% growth in its stock this year, the average Upstart Holdings price target of $189 implies 6.9% downside potential to current levels. Furthermore, Upstart Holdings stock has an ‘Outperform’ Smart Score of 10.
Disclosure: Amit Singh held no position in any of the stocks mentioned in this article at the time of publication.
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.
