Here’s Why Upstart Holdings is Not a Buy Right Now


UPST stock - Here’s Why Upstart Holdings is Not a Buy Right Now

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Upstart Holdings (NASDAQ: UPST), a leading artificial intelligence (AI) lending platform, has seen its shares go out of favor with losses of approximately 40% in 2022. Analysts have been extremely bullish on UPST stock, but this does not mean that it is a buy now. On Yahoo! Finance, the 1-year price target of UPST stock is $197.25. From today’s price, this would be a gain of about 120%. I am not that optimistic this will happen.

On CNN Business, 12 analysts have a median target for Upstart Holdings of $205, a high estimate of $350 and a low estimate of $75. I consider the median estimates to have almost zero chances of fruition due to three factors.

Upstart Holdings has only been profitable in FY20 and FY21. It reported net losses for the period of 2017 to 2019. What makes me skeptical is that there is not yet a pattern of sustainable profitability over time.

Next is the valuation of UPST stock, which is trading very rich. The price-to-sales (TTM) and price-to-book (TTM) ratios for the stock are 12.82 and 11.86, respectively. These ratios may seem not too extreme, but consider that as they move away from the ideal 1 ratio, UPST stock is getting more expensive. The ratios of this fintech stock should be examined not in isolation, but compared to benchmarks, like the ratios of the Financials Sector.

The median values for the Financials Sector of price-to-sales (TTM) and price-to-book (TTM) ratios are 3.03 and 1.16, respectively. So, UPST stock trades at a 175.92% difference in terms of price-to-sales (TTM), quite a lofty premium. Things are even worse for the price-to-book (TTM) ratio, as UPST stock has an astonishing 715.66% difference from the sector.

The third factor that is worrisome to me is that in its latest fourth-quarter and fiscal year 2021 earnings report, Upstart Holdings stated that 70% of consumers’ loans are instantly approved. As interest rates by the U.S. Federal Reserve are expected to rise more in 2022, Upstart needs to use its AI technology to fine-tune and find the balance between affordable credit and its improvement of AI models. As money gets expensive, the logic says that this 70% ratio of instantly approved loans should drop. The more aggressive the monetary policy becomes, the drop in this instant approval rate should grow. Higher interest rates make debt riskier, so banks are expected to be more selective in their screening and evaluation of loans. Should the banks cooperating with Upstart Holdings focus more on the risk aspect, a lower approval of loans will mean lower fees for Upstart. This is not an ideal scenario.

On the date of publication, Stavros Georgiadis, CFA  did not have (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 Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.

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