Upstart Stock Remains One of the Better Fintech Opportunities Out There

  • As uncertainties loom, Upstart Holdings (UPST), like other fintech firms, is struggling to bounce back.
  • However, now may be a great time to scoop up a high-quality name in the space like this one, while it remains out of favor.
  • Once the issues affecting the market clear up, Upstart has a strong chance of making a recovery.
In this photo illustration the Upstart (UPST) logo seen displayed on a smartphone screen

Source: rafapress / Shutterstock.com

Although it moved higher during last month’s broad market rally, shares in Upstart Holdings (NASDAQ:UPST) remain far below their past highs. Even worse, as fear, uncertainty and doubt (FUD) creeps back up, UPST stock is now sinking back toward its 52-week low.

The same thing is playing out with other fintech firms, which makes sense. After all, with inflation, rising interest rates and the prospect of an economic slowdown, it seems like the wrong time to invest in this space. But while it may be wise to take a pass on other fintech stocks, this may be one to consider while it remains beaten down.

While sporting a premium valuation, it’s reasonably priced compared to its future prospects. Tougher economic conditions may have less of an impact on the growth of its artificial intelligence (AI)-based lending platform.

Once today’s uncertainties clear up, it could make a very strong recovery.

Ticker Company Current Price
UPST Upstart Holdings $89.29

The Latest With UPST Stock

Recent news with Upstart has more or less been positive. A few days back, analysts at Loop Capital gave the stock a “buy” rating, and a $140 per share price target. For reference, it trades for around $90 per share.

What was Loop’s rationale for its bullish call on UPST stock? In its research note, the sell-side firm pointed to the “win-win” situation the company’s alternative to traditional lending risk models provides for both lending institutions and customers.

It’s a “win-win,” in that customers can obtain credit at lower rates, all while banks gain borrowers with lower loss rates. This points to more lenders adopting Upstart’s platform. Yet while Loop’s view on the stock could prove to be right on the money, right now it’s doing little to renew excitement for shares.

Instead, shares are moving lower, as we’re seeing happen to other fintech names. The prospect of tighter monetary policy from the Federal Reserve, and dampened demand for lending, has many fearful financial technologies companies will fall short of expectations. It’s too early to say, but that may just well be the case for many of them. In this company’s case, however, I wouldn’t necessarily jump to that conclusion.

Why Upstart Could Continue to Thrive During Tougher Times

Again, it may seem like the exactly wrong time to buy something like UPST stock, in two ways. First, due to valuation. Rising rates could put more pressure on growth stocks and their premium valuations. Second, due to the company’s own fundamentals. In theory, tougher times for the economy mean a more challenging environment for financial services providers.

However, the market may be overreacting to the extent in which worsening economic conditions will threaten the Upstart bull case. Although it’s far from being within the ballpark of being a “value stock,” shares are reasonably priced relative to future growth.

Based on sell-side consensus, shares trade for 39.5x estimated 2022 earnings, 28.3x estimated 2023 and 19.6x estimated 2024. Sure, given the current economic outlook, there’s logic to the discounting of future results we’re seeing now. Tougher economic times could severely impact the performance of fintech firms directly involved with lending.

That said, things could play out differently for this fintech firm. If its platform proves its mettle in the next year or so? Demand for it among institutions will likely stay robust. In turn, allowing it to meet (or beat) estimates in the years ahead.

The Verdict

Earning a “B” rating in my Portfolio Grader, a recovery for Upstart shares may not happen immediately. But it has a strong chance of continuing to deliver in terms of growth over the next year.

By then, as current storms begin to pass, enthusiasm for the stock could bounce back. Maybe not to the highs it hit in 2021. It may be a while before it leaps back above $400 per share.

Yet given the big gap between its high-water mark and its current price? Even a partial recovery would result in big gains for investors buying today.

More promising than many of the fintech plays out there, if you’re looking to go contrarian and buy while this sector is out of favor, consider a name like UPST stock.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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