KEY POINTS
OVERALL MARKETThe stock market indices finished Thursday with mixed results one day after the Fed's discussed the possibility of two interest rate hikes in 2023. The weekly new jobless claims report came out, and there was a 37K increase compared to last week's figure. Overall, the market is still trying to figure out whether the market is up for a correction due to forces such as inflation, or it can continue to rally thanks to the re-opening. THE MOST SUGGESTED STOCKToday, I'm looking at one of the most suggested stocks by Stock Card VIP users. You may know that Stock Card VIP users have access to the "Our Strategy" section on each Stock Card. In this section, they can see two things:
WHAT'S UP?Upstart Holding (UPST) stock analysis: The good stuff Upstart Holding is a new IPO from Silicon Valley in the financial technology sector that happens to be profitable. It uses artificial intelligence to better match customers who look for a loan with lenders who would provide it. Of course, when you combine silicon valley, fintech, and profitability, you'd expect overvalued stocks. Indeed, with financial ratios such as price to earnings ratio or price to sales ratio, the stock is overvalued. The question is whether the overvaluation was justified. The company has high growth potential because it applies better technology in the financial sector. On the company's website, it claims that it's AI technology has been able to assess the creditworthiness of applicants better than traditional models, resulting in 26% more borrowers getting approved and yielding 10% lower average APRs for the approved loans. My husband and I just went through a mortgage application, and I know first-hand how inefficient and frustrating the mortgage underwriting process is. So that's certainly a reason to be excited about its future. Going through its operational metrics, its revenue is expected to grow by $163% in the current fiscal year. The majority of loans that Upstarts processes are originated by its 12 bank partners, who originated about 170K loans in the first quarter of 2021. It's important that the company is only focused on personal loans and still has a large expansion opportunity to other credit products such as car loans or mortgages. That means the growth opportunity is quite large. WHAT'S DOWNUpstart Holding (UPST) stock analysis: The good stuff Now, let's turn our attention to some of the risks and shortcomings of Upstart. Inherently, all new IPOs are risky. In addition, the lack of operational information history makes our analysis harder than more established companies. That's why you see several grey areas on the company's Stock Card. The other challenge is that the company is entirely dependent on one of its partner banks for most of its revenue. At the end of 2020, Cross River Bank (CRB) originated 67% of all the loans facilitated by Upstart and represented 63% of its total revenue. This means Upstart still has a long way to sell its product to other banks in the U.S. We also can't forget about the competition. Artificial intelligence and modernization of banking infrastructure are a priority for almost all banks and credit unions. Upstart is not the only vendor in this market. Click on Credit Services' collection on the left-hand menu of Upstart's Stock Card, or type in credit services in the search bar, and 142 stocks appear on the list, Upstart being only one of them. It's not easy to develop a well-performing AI model to assess consumer creditworthiness, but Upstart isn't alone. We have seen how Lendingclub (LC) stock has struggled in the last few years, and these two companies offer a similar product. The last concern I have is that acquiring customers is quite expensive in the financial services industry. For example, upstart is entirely reliant on Credit Karma for more than 50% of its traffic. Put all the good and bad together, and I prefer to watch the stock for a few more quarters before jumping in. Upstart Holdings (UPST) stock analysis shows a fintech company with a large market opportunity but too much reliance on a few key partners to grow customers and revenue. Upstart is one of the so-called hidden gem smaller stocks that have created many conversations on social media, including Twitter. And, some risk-taker investors may jump in if they are comfortable with volatility. I prefer to watch it for a few more earnings releases before jumping in. Comments are closed.
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