Upstart Could Be Worth Substantially More as a Fast-growing Lending Platform

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Upstart Holdings (NASDAQ:UPST) is a loan referral fintech company that makes fees from loan referrals and loan servicing income. As I pointed out in my last article on UPST stock it’s not so much an AI (artificial intelligence) company, but a marketing and servicing company.

The website for Upstart (UPST) is viewed through a magnifying glass focused on the company's logo.
Source: Postmodern Studio / Shutterstock.com

In fact, most of the money it makes is from introducing and servicing large amounts of consumer and other loans. However, in my last article in October 2021, I was probably too optimistic about the valuation of UPST stock.

Since then, it has fallen from a peak price of $390 per share on Oct. 15, to a low of $90.13 on Jan. 27, 2022. Now, as of midday Feb. 2, it’s risen to over $100 at $105.64 and seems to be on an upturn.

This article will discuss reasons why UPST stock is likely to do well over the coming year.

The Steph Curry of the Fintech Industry

On Nov. 9, Upstart reported stellar revenue and earnings for the quarter ending Sept. 30. Revenue from fees, including loan referral and servicing fees, was $210.4 million, up dramatically from $62.9 million last year. Moreover, its interest income grew from $2.5 million last year to $18.0 million this past quarter.

Despite higher expenses, Upstart produced a profitable quarter, including $29.1 million in net income, verses just $9.7 million last year.

Even more importantly the company produced an operating cash-flow profit of $179.5 million for the nine months ending Sept. 30. This compared to a cash flow loss of $52.8 million last year.

So this is a very good quarterly earnings report for the newly public company. Moreover, analysts are now very positive on revenue for the coming year. As the CEO, David Girouard pointed out, they tripled their revenue, profits, and credit unions and banks on their platform. That makes them, with so many three-pointers, the “Steph Curry of the Fintech industry.”

For example, according to Seeking Alpha, 10 analysts surveyed have an average revenue forecast of over $1 billion in revenue ($1.17 billion) for 2022. That represents a potential rise of 45% from forecast 2021 revenue of $806.75 million.

Moreover, further out, those same analysts foresee 2023 revenue climbing quickly to $1.648 billion. So in just two years from the end of 2021 with revenue forecast at $807 million, sales are seen as more than doubling by the end of 2023.

That means that this company is in a huge growth mode. The stock likely does not reflect this now.

Where Upstart Stock Could Be Headed

As of Feb. 2, 2022, UPST stock has a market capitalization of about $8.93 billion, according to Seeking Alpha. However, Yahoo Finance, which uses Refinitiv data to calculate market cap, indicates its market value is $8.68 billion.

Using the higher market value, this still puts it on a forward price-to-sales (P/S) multiple of just 7.6 times 2022 forecast sales and 5.4x forward 2023 forecast sales.

That is close to the same multiples at Sofi Technologies (NASDAQ:SOFI), which has a similar market cap of $10.6 billion and trades for 7.3x 2022 sales and 5.0 x 2023 forecast sales.

However, as I pointed out in a recent article I wrote on SOFI stock, Sofi is not yet profitable or cash flow positive. Since UPST is very profitable and cash flow positive it deserves a higher comparable valuation.

I suspect, then, given the growth trajectory and its ongoing profitability, UPST stock is worth at least 50% more than its present price. That puts its value at $158.46 per share or 50% over today’s price (Feb. 2) of $105.64.

What To Do With UPST Stock

Analysts tend to agree with me on this. In fact, TipRanks reports that the average price target of nine analysts covering UPST stock is $236.44 or 101% over today’s price. They think Upstart is worth double today’s price, not just 50% as I have put forward.

I also suspect that once the earnings come out for the quarter and year ending Dec. 31, analysts will likely upgrade their target prices. Therefore, this could be a good point to take advantage of the weakness in the UPST stock price.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.

Mark Hake writes about personal finance on mrhake.medium.com, Newsbreak.com and Beehiiv.com.


Article printed from InvestorPlace Media, https://investorplace.com/2022/02/upst-stock-huge-growth-prospect-will-push-it-up-much-higher-in-2022/.

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