- The price of Upstart (UPST) stock has been nearly cut in half in 2022
- Upstart is still growing, and it’s profitable
- Why technology that lowers business costs will rise first
The price of Upstart Holdings (NASDAQ:UPST) stock has been cut in half in 2022. The year’s not half over.
As I often do, I arrived at the Upstart party early. I bought shares in January, after pounding the table for it here. I was made to regret my investment within a month.
But I haven’t sold. Companies that fight inflation best, that cut the costs of doing business, are going to rise as the economy turns around. Upstart replaces loan officers with algorithms.
When times are great, Upstart tells banks the algorithms do their work better. When times are bad, Upstart tells banks they can get rid of people.
Either way, it works.
| UPST | Upstart | $75.49 |
By the Numbers
Upstart next reports earnings May 9. It’s expected to earn about $40 million, or 51 cents/share, on revenue of $302 million. The “whisper number,” the one analysts tell friends about over martinis (hopefully after work) is for earnings of 56 cents.
That was close to the expectation for the December quarter, too. Instead, the company earned 95 cents/share. Revenue was about $263 million.
You would think after beating estimates handily, shares would be up. They’re not. They’re down over 25% since February.
Sellers have reasons. They always do. Interest rates are up. Economic growth is down. Housing is being squeezed. The whole market is under pressure. No area of the market is under so much pressure as technology. Upstart stock is also still expensive, a market capitalization of $6.39 billion and a forward price to earnings multiple of 30.67. The stock is now just a “moderate buy” at Tipranks, with 1 of the 10 analysts telling investors to sell it.
I felt foolish, buying UPST stock then watching it fall. Now imagine how the folks at Bank of America (NYSE:BAC) feel. After those great earnings the bank gave the stock a rare “double upgrade,” with a price target of $255/share. If Upstart hits that estimate, the bank’s customers are tripling their money from here.
FBN also has a buy rating on the stock, but with a price target of $155.
Upstart stock opened April 26 at $75.50/share. That’s down over 5% from its April 25 close, as stocks opened lower across the board.
The Risks
Upstart has competitors. Affirm (NASDAQ:AFRM) is one of those competitors. Privately-held Plaid is a competitor. Kiavi, formerly Lending Home, is also a competitor.
There’s also a risk a large company (maybe Bank of America) might grab Upstart while it’s down and take investors out at a price below their entry point. But Upstart has no need to sell, with almost $1.2 billion in the bank as of December. Most shares are held by institutions, and they were still buying during the first quarter.
Finally, there’s the risk that the market may need neither bankers nor software that replicates them. Upstart’s expansion plans for 2022 include a move into analyzing home mortgage applications. That could mean slower growth.
The Bottom Line
I don’t like losing money. I understand the desire to hunker down, to buy only what’s safe, and to wait out the storm.
But when the storm ends, the snapback is likely to be ferocious. That’s been the case since 2009, when the Great Recession bottom was hit, and stocks immediately took off.
If your account has a lot of cash, you can buy Upstart here. If your account doesn’t have a lot of cash, sell something else, preferably where you still have a profit. If you feel you must sell Upstart, keep it on your buy list for when stocks rally again.
I may have bigger losses to come, but I still have plenty of cash so I’m holding on to my Upstart shares.
On the date of publication, Dana Blankenhorn held long positions in BAC and UPST. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
