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Upstart Looks Poised to Double by the End of Next Year

The Street is overly bearish on Upstart (UPST).
Evidence indicates the company’s business remains strong.
UPST stock is vastly undervalued, so it’s time to pick up some shares.

Source: rafapress /

Wall Street i…

  • The Street is overly bearish on Upstart (UPST).
  • Evidence indicates the company’s business remains strong.
  • UPST stock is vastly undervalued, so it’s time to pick up some shares.

Source: rafapress /

Wall Street is famous for emphasizing the short term over the long term and failing to see the big picture. Those two traits caused it to tremendously overreact to the negative aspects of Upstart’s (NASDAQ:UPST) first-quarter results, resulting in an unjustified plunge by UPST stock.

Upstart’s platform utilizes artificial intelligence to evaluate borrowers. Its products also enable banks and other companies to safely lend to many more borrowers than they have in the past.


Nothing in its Q1 results that made the stock decline indicates its business or its outlook have been meaningfully impaired. As a result, the shares’ plunge of 50% since the results were reported is totally unjustified.

Moreover, given the stock’s current valuation and Upstart’s medium-term outlook, I believe the shares could easily double within a year.



 Two Negative Developments

The Street was upset by two aspects of Upstart’s first quarter results which were unveiled on May 9. First, it lowered its full-year revenue guidance to $1.25 billion from $1.4 billion.

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Meanwhile, the value of the loans it held on its balance sheet rose to $598 million at the end of Q1. That’s up from $252 million during the same period a year earlier.

Based on the tremendous subsequent decline of UPST stock, many investors appear to believe lenders are avoiding doing business with the company because there’s something wrong with its platform. Additionally, the Street seems to think Upstart is facing a great deal of risk.

The Street Overreacted

Refuting the first point, the company was doing business with 42 banks at the end of 2021, up from just 10 in December 2020. Moreover, as of the end of Q1, Upstart had recruited a total of 500 entities for its auto lending program versus just 100 during the same time in 2020.


If Upstart’s platform did not work well, lenders would be giving up on it in droves. And few, if any, new lenders would be adopting its platform, since the whole industry would have heard it doesn’t work. So, the large increases in Upstart’s customer base strongly indicate the company’s platform does work well and is generally being embraced by lenders.

As for the worries about Upstart’s balance sheet, there are two very important points to consider. First, CFO Sanjay Datta reported that only “a single-digit percentage” of its total loans has been retained on its balance sheet.


Secondly, it’s important to consider the nature of Upstart’s customer base and its platform. On the first point, banks are not at all like the typical Silicon Valley company that’s always eager to embrace new technology. Actually, bankers have a well-deserved reputation for being conservative.

Thus, it’s logical that, as interest rates jump and worries about the economy grow, some bankers will be reluctant to buy a portion of Upstart’s loans. After all, its technology is new, and it is lending to many borrowers who would have been rejected by the conventional system of loan evaluation. So amid the “new normal,” it would be surprising if Upstart did not, for awhile, have some trouble selling a sizeable portion of its loans.


Why UPST Stock Looks Ready to Double

Upstart’s business continues to grow rapidly. Its Q1 earnings per share (EPS), excluding some items, reached 61 cents versus analysts’ average estimate of 53 cents.


Moreover, the company expects its Q2 adjusted net income to be $28 million to $30 million this quarter, and it expects its 2022 contribution margin will come in at a healthy level of roughly 48%. And as I’ve pointed out, much of the Street is too bearish on the company’s outlook.

Therefore, I think Upstart is well-positioned to meaningfully exceed analysts’ average 2023 EPS estimate for the company of $2.58 to generate earnings as high as $3.


Given Upstart’s strong growth and competitive advantages, it deserves a premium price-to-earnings (P/E) multiple of 35x. That would put its price at the end of 2023 at $105, more than double compared to its current price just below $45. UPST stock is vastly undervalued, making it a definite buy for long-term investors.

On the date of publication, Larry Ramer was long UPST stock. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.


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