Upstart (NASDAQ:UPST) was a top performer during the pandemic-driven market surge of 2021. While the stock has since fallen 93% from its peak, many see it as a compelling opportunity for value and contrarian investors, with the potential for a rebound this year.
The company operates a cloud-based AI-powered lending platform that aims to provide affordable credit with reduced risk and costs for its partners. Using machine learning models, Upstart is able to approve more loan applicants compared to traditional credit score-based models. Its platform offers various types of loans, including personal, automotive retail, refinance, home equity lines of credit (HELOC), and small dollar loans.
Upstart has facilitated over three million loans totaling $38 billion in partnership with over 100 banks and financial institutions. Its AI models and cloud applications help lenders approve more borrowers at lower APRs across different demographics. The company’s unique lending approach has proven successful, with over 90% of loans originating from its platform fully automated and 91% of these loans funded.
One of Upstart’s key strengths is its robust lending model, which allows lenders to process and disburse more loans while keeping default rates low. By analyzing over 1,600 variables and training on millions of repayment events, Upstart’s model is more accurate than traditional models, enabling lenders to approve more applications. The company also aims to bridge the racial wealth gap by approving a higher percentage of minority borrowers at lower APRs.
Despite recent market challenges, Upstart has expanded its revenue by 24% year-over-year to $127.8 million in Q1 of 2024. The company has diversified its offerings into auto loans, small dollar loans, and HELOCs, with plans for further growth. Upstart’s revenue streams have also been enhanced through new customer personalization solutions and partnerships with lenders.
While the current lending environment may pose challenges, Upstart’s relatively low valuation and strong market potential make it an attractive investment opportunity. With a forward price-to-sales multiple of 3.79x, significantly lower than its previous ratio, Upstart presents a compelling value proposition for investors.
Analysts have a mixed outlook on UPST stock, with a consensus rating of Moderate Sell and an average price target of $18.29, indicating potential downside. However, the company’s innovative approach to lending and strong growth prospects suggest that Upstart may offer significant returns for investors willing to take on the risk.
In conclusion, Upstart’s unique position in the lending market, coupled with its AI-powered platform and expanding product portfolio, make it a promising investment opportunity for those willing to weather the market volatility.