I am bullish on Upstart Holdings (UPST), as it has strong support from Wall Street analysts and an average price target that implies very impressive upside potential. Furthermore, the growth momentum and potential are fantastic.
Upstart Holdings is a platform powered by artificial intelligence. It uses a machine-learning mechanism to gauge a customer’s creditworthiness and evaluate their ability to pay back a loan. The ultimate goal of this platform is to make credit assessments increasingly accurate.
The platform uses more than 1,600 data points and more than 10 million trained data repayment events to measure the credit risks. Once the evaluation is complete, Upstart then partners up with institutional investors or banks to hand out these loans to the customers. I am bullish on the stock.
Strengths
Upstart’s business model is built around bank partnerships. The value proposition of the Upstart model is that it allows its bank partners to have improved approval rates while simultaneously maintaining a low loss rate. Since the experience is digital, the customer is also connected to the company throughout the process.
Moreover, Upstart provides approval rates three times better than a normal bank. Upstart’s advanced learning mechanism creates the opportunity to have a data-driven loan, leading to a lower fraud rate. This also increases the chances of loans being approved for the right people.
Recent Results
Compared to a revenue of $193.95 million in Q2, UPST reported $228 million in Q3. According to the company, their contribution profit in Q2 out of these figures was $97 million, while in Q3 it dropped by a million and arrived at $96 million.
Upstart’s adjusted EBITDA for the quarter was 59.1 million or 26% of its total revenue, while in Q2, its adjusted EBITDA was $59.5. The company also reported that its total assets grew $1,606 million, while in Q2, this number was at $904.6 million. Impressive numbers like these were made possible because of its loan automation rate, which stood at 67%, although this was a step down from Q2 (71%).
Valuation Metrics
UPST stock looks attractively priced at the moment. Its enterprise value to EBITDA ratio is discounted relative to its history, at 36.4 times compared to its historical average of 154.11 times. Furthermore, its price to normalized earnings ratio is 51.3 times compared to its historic average of 243.06 times.
Analysts expect the company to see revenue, EBITDA, and normalized earnings-per-share growth in 2022 of 44.8%, 35.2%, and 20.2% respectively.
Wall Street’s Take
According to Wall Street analysts, UPST earns a Moderate Buy analyst consensus, based on five Buy ratings, three Hold Ratings and one Sell rating in the past three months. Additionally, the average price target of $250.33 puts the upside potential at 125.30%.
Summary and Conclusions
Upstart is an innovative company that is leveraging cutting-edge technology to improve people’s lives and disrupt an industry. As a result, the company has enjoyed strong growth thus far, and has massive future growth potential.
Wall Street analysts are generally bullish on the stock and the average price target implies massive upside potential over the next year. On top of that, the valuation multiples look attractive relative to the company’s history.
On the other hand, the valuation multiples are still quite high on an absolute basis, so the company must continue to deliver rapid growth for quite some time to prove them justified. Nevertheless, on a risk-adjusted basis the shares look quite attractive here, so investors might want to consider adding shares.
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