- Upstart Holdings (UPST) is down significantly from its fall 2021 highs and it’s off 24% year-to-date (YTD).
- Analysts believe the company is worth over 84% more especially if the economy does not head into a recession.
- Its main appeal is that the lending company is profitable unlike a number of its competitors.
Upstart Holdings (NASDAQ:UPST), the personal loan referral fintech company, says its platform is an artificial intelligence-based program connecting borrowers with its network of lenders. In essence, it makes a referral fee, rather than traditional loan interest and fees. That allows Upstart to be very profitable without much risk. Its earnings results are helping UPST stock to rebound from its recent lows.
For example, Upstart Holdings recently hit a low of $89.34 on March 14. However, since then UPST stock has drifted up by 27.8% to $114.14.
However, it is still below where it ended last year at $151.30. That means UPST stock is off by 24.6% YTD. And compared to its recent high of $390 on Oct. 15, the stock is well off its peak.
| UPST | Upstart Holdings | $114.14 |
But UPST stock looks cheap here, especially now that analysts are projecting significantly higher earnings by 2023 and much higher price targets.
Upstart’s Latest Earnings
On Feb. 15, Upstart reported that its revenue for fourth-quarter 2021 was $305 million, an increase of 252% from the fourth quarter of 2020. Moreover, its adjusted net income was $87.0 million. This was up from $5.4 million in the same quarter of the prior year, a significant increase just like its revenue.
This shows that its net income margin was $28.5%, a very healthy margin, especially since a number of its competitors like Sofi Technologies (NASDAQ:SOFI) are not profitable.
Moreover, for the year ending Dec. 31, Upstart made an adjusted net income of $224 million on revenues of $849 million. That represents a net income margin of 26.4% for the year. This shows that the Q4 margin was higher than the full-year rate, indicating that its profitability is actually rising.
On top of this, the company provided guidance for the upcoming quarter and for all of 2022. It said that it expects revenue of $1.4 billion in 2022 and adj. EBITDA (earnings before interest, taxes, depreciation, and amortization) of 17% of that amount or $238 million.
Based on this 11 analysts now forecast that earnings per share (EPS) will reach $2.32 in 2022 and $3.46 in 2023. That represents potential EPS growth of 46% over the next two months. This compounds out to an average of 20.83 in EPS growth in each of the next two years.
Where This Leaves UPST Stock
Based on analysts’ earnings estimates, UPST stock trades for 50 times 2022 trailing earnings and 33 times 2023 earnings. Moreover, based on price-to-sales (P/S) ratios, the stock trades for 13 times 2022 revenue given its $10.1 billion market capitalization.
These are not necessarily cheap metrics, at least for value investors. However, given the robust sales and earnings increases that the company expects to produce this year and next, growth investors might find it interesting.
For example, the average price target of 10 analysts surveyed by Refinitiv (Yahoo! Finance) is $210.30 per share. That represents a potential upside of over 84% for UPST stock. Moreover, seven analysts on Wall Street who’ve written on the stock in the last three months have an average target of $190.71, or 67% over today, according to TipRanks.
This shows that analysts are still very ebullient on UPST stock, even though its valuation metrics are quite high. The truth is that they expect that sales and earnings growth will likely outperform expectations. That is why they have set their price targets so high.
If you are inclined to buy high-priced growth stocks, this one may be for you. Just keep in mind there is no margin of safety in case the company does not outperform expectations.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions 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.
