After a stellar bull run, shares of financial technology companies are under immense pressure. Take Upstart and Affirm, for instance. Shares of these companies have recently lost a considerable portion of their value.
Jefferies analyst John Hecht highlighted industry-wide valuation compression, regulatory uncertainty, and concerns over credit risk posing challenges.
Further, the fading of stimulus, high inflation, and increases in interest rates pose challenges, as these could put pressure on borrowers and institutions with exposure to credit-based financial instruments.
With that in mind, let’s discuss what the future could hold for Upstart and Affirm.
Upstart (NASDAQ:UPST)
Upstart Holdings recently delivered solid Q4 financial results. Further, the financial technology company expects the momentum to continue and projects 65% growth in revenue in 2022.
However, UPST stock continues to trend lower and has lost a substantial portion of its value despite its stellar performance and upbeat guidance. UPST stock has lost about 78% of its value from its 52-week high. Further, it is down about 41% this year.
Notably, a significant portion of loans (about 80%) issued through Upstart’s platform are purchased by institutional investors through financial instruments, including investments in asset-backed securities (ABS).
Wedbush analyst David Chiaverini highlighted Upstart’s “robust AI-powered machine learning model and its high growth with strong potential.”
However, the analyst has a Sell recommendation on the stock.
Chiaverini added, “Our UNDERPERFORM rating is based on its reliance on third-party funding, which we believe may become more limited in the near term and that weakening delinquency trends on recent 2021 vintage securitizations that appear to be deteriorating at a faster pace than its 2018, 2019, and 2020 vintages”
Further, the analyst highlighted that Upstart’s cost of funds is increasing for ABS deals.
Nevertheless, TipRanks’ investors and hedge funds have accumulated UPST stock on the weakness. Per the data, 2.9% of investors holding portfolios on TipRanks have increased their exposure to UPST shares over the past 30 days. Further, hedge funds have added 567.2K UPST shares in the last quarter.
While TipRanks’ investors and hedge fund managers are positive about UPST stock, Wall Street is cautiously optimistic. UPST stock has received six Buy, two Hold, and one Sell recommendations for a Moderate Buy consensus rating.
Further, due to the significant drop in price, the average Upstart price target of $177.67 indicates 98% upside potential to current levels.
Affirm (NASDAQ:AFRM)
Affirm stock has declined about 79% from its 52-week high. Moreover, it has fallen over 62% this year. Notably, a consistent decline in revenue yield (revenue as a percentage of GMV) has weighed on Affirm stock. Further, credit and interest rate headwinds remained a drag, noted Kevin Barker of Piper Sandler. Barker has a Hold recommendation on AFRM stock.
While Barker remains sidelined, Mizuho Securities analyst Dan Dolev expects AFRM stock to more than double. The analyst has a Buy recommendation on AFRM with a price target of $79 (109.6% upside potential).
Highlighting his chat with AFRM’s CFO, Michael Linford, Dolev stated, “The CFO reiterated Fed Chair recent commentary that the consumer is healthy and the labor market is good. In summary, as of now, we believe the credit environment remains benign and hence fears are overblown.”
Further, Dolev is upbeat about Affirm’s deal with Amazon (NASDAQ:AMZN). However, the analysts pointed to the compression of peer valuations and the “rising risk of further delinquencies and charge-offs” as concerns.
AFRM stock has received eight Buy, six Hold, and one Sell recommendations for a Moderate Buy consensus rating. Further, the average Upstart price target of $69.87 indicates 85.3% upside potential to current levels.
While Wall Street is cautiously optimistic about AFRM, hedge funds and TipRanks’ investors have sold the stock. Hedge funds have decreased their holdings by 48.8K shares in the past three months. Further, 1.7% of investors holding portfolios with TipRanks sold AFRM stock in the last 30 days.
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