Upstart Stock Will Reward Patient Investors

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UPST stock - Upstart Stock Will Reward Patient Investors

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The valuation of Upstart (NASDAQ:UPST) stock has become much more reasonable in recent weeks, while the company’s long-term outlook remains very bright.

Also worth noting is that the macroeconomic picture is improving significantly for Upstart. Given these points, I recommend that long-term growth investors buy UPST stock.

UPST Stock’s More Reasonable Valuation and Rosy Future

On March 2, UPST closed at $156.93. Today, the shares are changing hands for slightly below $80. That’s a near 50% decline.

Now the shares are worth 3.7 times analysts’ average 2023 revenue estimate for the company. With the mean estimate calling for the profitable company’s sales to soar 65% this year and another 35% in 2023, Upstart’s shares are not expensive at their current levels.

Upstart’s strong growth and profitability indicate that its AI-based borrower evaluation tools are highly valued by many banks. Specifically, in 2021, Upstart’s revenue soared to $801 million from just $229 million in 2020 and $160 million in 2019. And its operating income jumped to $145 million last year from $20 million in 2020 and $22 million in 2019.

Upstart’s ability to use AI to automatically identify many more creditworthy borrowers should continue to meaningfully lift the top and bottom lines of many financial institutions that don’t have access to AI.

In a recent column, another InvestorPlace contributor, Stavros Georgiadis, warned that Upstart could make less money when interest rates climb because fewer of the borrowers that its tools evaluate will be approved for loans. But, since American households still have a great deal of funds at their disposal, and the labor market remains extremely strong, I don’t expect banks to sharply curtail their loans anytime soon.

The Macro Picture Is Improving

With inflation widely expected to peak soon, the Fed will be able to raise interest rates more slowly and, ultimately, to a lesser extent than those who are bearish on stocks are predicting.

I’m not the only one who has that point of view. As I reported in a previous column, “a BlackRock (NYSE:BLK) executive recently said that the Fed would hike more slowly than many anticipate  and would be likely to embrace more gradual rate increases later in the year as inflation cools.”

Not only will lower-than-expected rates help Upstart’s business, but they should also make many investors less afraid of buying the shares of growth stocks, including those of Upstart.

On the date of publication, Larry Ramer 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 InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2022/04/upst-stock-upstart-will-reward-patient-investors/.

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