If you heard the name Upstart (NASDAQ:UPST), you probably wouldn’t realize which industry it operates in. Upstart is a company that utilizes artificial intelligence and machine learning to disrupt the personal loan and financial services industry. The company was founded back in 2012 by some ex-members of management from Google, and went public on the NASDAQ exchange on December 15 of 2020.
Shares of Upstart began trading at $20 per share, giving the company an initial public valuation of about $1.5 billion. In the eleven months since, UPST stock has skyrocketed, rising by over 600% since its debut on Wall Street. The company has grown about ten times during that period, as Upstart now boasts a market cap of over $16 billion. Why has Upstart performed so well? Let’s take a deeper dive at the Upstart Stock Forecast over the next few years.
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AI Authorized Personal Loans
Upstart is apart of a growing number of companies that are disrupting the archaic financial services industry. Rather than having humans reviewing and authorizing each loan application, Upstart uses artificial intelligence to instantly grant or reject a user. It is a similar learning system to other companies like Lemonade (NYSE:LMND) for insurance and SoFi Technologies (NASDAQ:SOFI) for banking.
How efficient is Upstart’s system? In the most recent quarter the company boasted that 67% of loan applications were instantly approved, with no additional calls or conversation with Upstart staff. Not only does this cut down on Upstart’s costs, but it has also opened up the personal loan approval process for a wider demographic of applicants.
Upstart has also recently added auto loans and has tripled the number of dealerships that use its platform year over year. This additional loan segment has caused a rapid increase in Upstart’s revenue, as the company saw a staggering 250% year over year growth, and a 201% year over year rise in net income. Certainly some impressive financial figures for such a young company.
Upstart is also constantly growing its banking partners to provide its users with the best possible loan opportunities. The company recently added a partnership with BCU which is a top-100 credit union that provides services to well over 300,000 clients across the country. Other institutions Upstart has teamed up with this year include Four Corners Community Bank, Abound Credit Union, and WSFS Bank.
Upstart sell-off sees valuation fall below Wallstreet’s target
While Upstart skyrocketed following its IPO debut, the stock is currently trading 42% lower this month alone. Furthermore, since the companies Q3 earnings call, UPST stock has slid 34.50% to $205 a share. At UPST’s peak valuation, firms such as Bank of America raised the alarm bells on overvaluation. Now, even the lowest targets from Wallstreet imply an upside, hindering the question of why the stock is still falling.
On November 10, Piper Sandler analyst Arvind Ramnani reaffirmed the firms Upstart Stock Forecast with an Overweight rating and a $300 price target. The analyst cited a robust third quarter for Upstart that was driven by “continued loan volume growth and a steady conversion rate” according to theFly. Ramnani noted that the recent Upstart stock sell-off is primarily due to elevated investor expectations following its steep climb post-IPO.
The analyst sees the current sell-off as a buying opportunity, as Upstart has a disruptive offering that is improving outcomes across the lending business, for both lenders and consumers. The $300 valuation from Piper Sandler currently represents a neat upside of 46.3%.
On the other side of the coin, Bank of America analyst Nat Schindler has taken more of a conservative approach. In October, the analyst initiated coverage with a Underperform rating and a $300 price target. The analyst highlighted that although the companies long term thesis is intact, the short term upside has already been priced into the valuation. Interestingly, at the time of the BofA coverage Upstart stock had reached its all time high of $401, just days prior. This indicates that at the current price of $205, BofA’s $300 price target now implies an upside based on their valuation model.
The Bottom Line: Upstart Stock Forecast
Overall, Upstart as a business has reinvented the lending game as we know it. Upstart’s AI technology is improving outcomes for both lending institutions and their customers looking for financing. As a result, investors scrambled to purchase the stock before its valuation exceeded its upside. Upstart stock’s rise to popularity following its IPO is unique, and has provided early investors eye watering returns. As of now, the stock has plummeted to $205 a share, the first time since August.
On the financial side, Upstart is already GAAP net income profitable, and is only beginning to tackle the loan market. In fact, Upstart estimates that the total addressable market for auto, mortgage, and personal loans exceeds $6 trillion. AI’s role in lending is expected to blossom over the next 5 years, with a recent study forecasting a value of $315 Billion in loans via AI underwriting expected in 2025. We will continue to update our viewers on any developments in the Upstart Stock Forecast as we close out the calendar year.
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The content above is strictly for informational purposes only and is not financial advice nor does it constitute a recommendation. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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