Upstart Stock: What Could Limit Upside Potential?

After losing a considerable portion of its value, shares of Upstart Holdings (NASDAQ:UPST) got a significant boost from its Q4 results. Upstart stock has risen about 25% since it posted its Q4 results on February 15. 

Notably, Upstart delivered stellar revenue and earnings in Q4 that handily surpassed Street estimates. Further, Upstart expects the momentum in its business to continue and projects revenues to reach $1.4 billion in 2022, up about 65% year-over-year. 

Now What?

While Upstart Holdings’ Q4 performance and 2022 revenue guidance impressed, John Hecht of Jefferies noted that Upstart’s margins could take a hit from increased costs. 

Hecht expects Upstart’s strong revenue growth to come at the cost of margins. He added that Upstart’s “expenses are expected to outpace revenue, leading to a contribution margin contraction of ~5% and an adj. profit margin of 16% (vs. 26% in ‘21).” 

Hecht remains on the sidelines and has a price target of $100 on UPST stock, implying 26.4% downside potential from current levels. 

While Hecht sees margin headwinds, Wedbush analyst David Chiaverini is worried about delinquency trends. Chiaverini noted that UPST’s 2021 vintage securitizations appear to be deteriorating at a faster pace compared to previous years. 

Chiaverini has a Hold rating on UPST stock and added that he would wait for delinquency trends to normalize before becoming more constructive. 

Wall Street’s Take

Wall Street is cautiously optimistic on Upstart stock due to margin headwinds and concerns around delinquency trends. UPST has received 6 Buy and 3 Hold recommendations for a Moderate Buy consensus rating. 

Further, UPST’s stock price forecast on TipRanks shows significant upside potential. The average Upstart price target of $213.33 indicates 57% upside potential to current levels.

Meanwhile, hedge funds have been selling UPST stock. Per TipRanks’, the Hedge Fund Trading Activity tool shows that hedge funds sold 27.6K UPST shares in the last quarter. 

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