UPST with Nobias technology: Upstart Holdings: A Rollercoaster Ride Unlikely To End Anytime Soon
Like so many of the more speculative growth stocks from the tech sector, Upstart Holdings (UPST) has experienced quite a bit of volatility throughout 2022 thus far. The stock began the year trading for approximately $145/share. Then, Upstart was sold off, alongside so many other of the high growth tech stocks, falling down to the $90 area during late January/early February. Then, in mid-February, the company posted a strong earnings report, beating analyst consensus estimates on both the top and bottom lines, causing shares to rally back into positive year-to-date territory, with shares peaking in the $157 area in early March.
However, in recent weeks, we’ve seen negative sentiment drive shares back towards their 2022 lows and right now, UPST trades for $106.95, meaning that shares are down 26.07% on a year-to-date basis. What’s more, at $106.95, UPST is down an astounding 73.4% from its current 52-week high of $401.49 that the stock made in the middle of last year.
Therefore, after this roller coaster of a ride that shareholders have been on recently, we decided that it was time to take a look at what the credible authors and analysts have had to say about Upstart Holdings to see if this 70%+ drop is a dip worth buying. Last week, Nobias 5-star rated author, Wayne Rhoads, published an article at zolmax.com which highlighted the company’s operating profile and recent insider trading activity.
UPST March 2022
Rhoads described Upstart Holdings as “a cloud- based artificial intelligence (AI) lending platform. The company's platform aggregates consumer demand for loans and connects it to its network of the company's AI- enabled bank partners. Its platform connects consumers, banks, and institutional investors through a shared AI lending platform.”
Regarding insider sales, he said, “CEO Dave Girouard sold 83,333 shares of the company’s stock in a transaction dated Tuesday, February 1st. The shares were sold at an average price of $109.37, for a total transaction of $9,114,130.21. The transaction was disclosed in a filing with the Securities & Exchange Commission, which is accessible through the SEC website.”
Rhoads continued, noting that, “Also, General Counsel Alison Nicoll sold 7,500 shares of the company’s stock in a transaction dated Wednesday, March 2nd. The stock was sold at an average price of $146.64, for a total transaction of $1,099,800.00. The disclosure for this sale can be found here.” Lastly, he said, “In the last 90 days, insiders have sold 249,374 shares of company stock valued at $32,085,708. Insiders own 25.20% of the company’s stock.”
These insider sales have likely played a role in the negative sentiment surrounding UPST shares at the moment; while it’s true that insiders sell for various reasons and they don’t also signal trouble from an operating point of view, this level of insider selling doesn’t bode well for the market’s confidence in a given stock. And, that’s too bad (for the bulls here) because it wasn’t long ago that it appeared that some of the storm clouds following UPST around had abated.
On February 17th, Bram Berkowitz, a Nobias 4-star rated author, published an article at The Motley Fool titled, “Why Shares of Upstart Are Surging This Week”. In his piece, Berkowitz said, “Shares of the artificial intelligence (AI) lender Upstart ( UPST 9.71% ) had surged nearly 40% this week as of market close Thursday after the company reported superb earnings results for the fourth quarter of 2021.” He continued, “Upstart reported adjusted earnings per share of $0.89 on total revenue of $305 million, easily beating analyst estimates. The company originated nearly $4.1 billion of loans in the quarter, a nearly $1 billion increase from the prior quarter. In tandem with earnings, Upstart also announced a $400 million share repurchase program.”
Berkowitz wasn’t the only one who thought that Upstart’s results were stellar. During the company’s Q4 earnings release, Upstart’s Co-Founder and CEO, Dave Girouard, said, “With triple-digit growth and record profits, Q4 was an exceptional finish to a breakout year for Upstart. 2021 will be remembered as the year AI lending came to the forefront, kicking off the most impactful transformation of credit in decades.”
Girouard continued, "But AI lending isn’t a one-category phenomenon. I’m also happy to report that, with help from an epic push by our team in the last few weeks of the year, auto loan originations on our platform are now ramping quickly and will provide growth opportunities to Upstart for years to come."
Furthermore, during its Q4 report, UPST provided guidance for the market, highlighting its full-year 2022 goals. The company stated: For the full year 2022, Upstart expects:
Revenue of approximately $1.4 billion
Contribution Margin of approximately 45%
Adjusted EBITDA of approximately 17%
Auto Transaction Volume of approximately $1.5 billion
Relative to full-year 2021’s revenue result of $849 million, this represents top-line growth potential of approximately 65%. That was certainly the type of guidance that the market wanted to see (as shown by the ~40% rally that Berkowitz highlighted). Berkowitz concludes his article with an air of cation, saying, “While Upstart did have a strong fourth quarter, I do have some concerns about the company as we head into a much different monetary environment and one where credit quality might not be so benign, as the Federal Reserve increases its benchmark overnight lending rate.”
As it turns out, Berkowitz wasn’t the only credible author that we follow that has expressed a somewhat neutral opinion on the company in a post-Q4 earnings result world. The Value Pendulum, a Nobias 4-star rated author, recently published a report on UPST at Seeking Alpha which broke down the company’s recent results, highlighting both the pros and cons of the company’s shares from a fundamental perspective.
Ultimately, The Value Pendulum came to the conclusion that: “UPST stock is a Hold. A comparison of Upstart's forward Enterprise Value-to-Revenue valuations with that of its peers suggests that the stock is fairly valued now. On the positive side of things, UPST's automotive refinancing has good growth prospects as evidenced by the company's 2022 revenue guidance. On the negative side of things, it might be difficult for Upstart's valuation multiples to expand substantially in the short term, as the fintech sector is out of favor now and there are worries about the increase in the company's default rates.”
With regard to the tough macro environment that names like UPST find themselves operating in at the moment, we recently saw another Nobias 4-star rated author, Billy Duberstein, post a report on the company, putting a spotlight on the recent pullback that the fin-tech industry has experienced.
In his March 14th article at The Motley Fool, Duberstein said, “Fintechs benefited over the past few years as the interest rate environment was amenable to high-growth technology stocks, and the economy was relatively healthy. However, the current environment is causing concerns that both those trends might reverse.” He continued, touching upon the Federal Reserve’s recent decision to raise rates, saying:
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
“What may have really driven these stocks lower today is the 10-year Treasury Bond yield rocketing 6.8% higher to 2.14%, the highest reading since 2019, and now even higher than in the months prior to the pandemic. That could signal that inflation metrics are becoming more embedded. High inflation tends to lead to higher interest rates, which decrease the value of earnings far out into the future.
That hurts the value of growth stocks like Upstart, Block, and Lemonade. Upstart trades at 62 times earnings, Block trades at 287 times earnings, and Lemonade is still unprofitable. Therefore, it's no surprise they got hurt along with other high-growth tech stocks today.”
Overall, when looking at the credible authors that the Nobias algorithm tracks, the sentiment surrounding Upstart Holdings is Neutral, with 52% of recent reports expressing a “Bullish” outlook. However, the credible analysts that we follow are much more bullish. The average price target that the credible Wall Street analysts that we track apply to UPST is currently $214.50.
Relative to the stock’s current share price of $106.95, that represents upside potential of approximately 100.5%. Therefore, it’s clear to see why the stock has been so volatile recently. There is a mighty game of tug-of-war being played right now between the bulls and the bears and this speculative growth stock is caught up in the middle of it.
Disclosure: Of the stocks mentioned in this article, Nicholas Ward has a long position in SQ. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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