Upstart Stock Rallies 114% in 6 Months: Still a Buy or Too Late?

Core Insights - Upstart Holdings, Inc. has experienced a remarkable 114.3% gain over the past six months, significantly outperforming the Financial Select Sector SPDR Fund and the S&P 500, which gained 16.7% and 14.8% respectively [1] - The surge in Upstart's stock price is primarily attributed to macroeconomic shifts, particularly the U.S. Federal Reserve's interest rate policies, which have improved the outlook for the company [1][2] Financial Performance - The Federal Reserve's recent decision to cut rates by 50 basis points is expected to increase loan demand, benefiting Upstart's AI-driven loan assessment model [2] - Upstart's annual revenue run rate has halved from around $1 billion due to previous aggressive interest rate hikes, but further rate cuts could lead to a surge in loan originations and revenue recovery [3] - Second-quarter 2024 revenues declined to $128 million, highlighting the need for favorable rate cuts to regain lost ground [4] Sales Estimates - Zacks Consensus Estimate for the current quarter (September 2024) is $150.14 million, with projections for the next quarter (December 2024) at $160.68 million and for the current year (December 2024) at $566.15 million, reflecting a year-over-year growth estimate of 10.24% [5] - For the next year (December 2025), the sales estimate is projected at $687.15 million, indicating a growth rate of 21.37% [5] Earnings Estimates - Zacks Consensus Estimate for earnings in the current quarter (September 2024) is -$0.14, with expectations of -$0.02 for the next quarter (December 2024) and -$0.62 for the current year (December 2024) [7] - The earnings estimate for the next year (December 2025) is projected at $0.49, showing a significant potential recovery [7] Competitive Advantage - Upstart's use of AI has automated 91% of its loan approval process, providing a competitive edge over traditional lenders like SoFi and LendingClub [8] - This automation allows Upstart to offer lower annual percentage rates (APRs) to riskier borrowers without compromising credit performance, unlike its competitors who rely on traditional credit assessment methods [9] Market Expansion - Upstart has expanded its loan portfolio beyond personal loans to include auto loans, home equity lines of credit, and small-dollar relief loans, diversifying its revenue streams [10] Valuation Concerns - Upstart's current valuation is high, with a forward 12-month price-to-earnings (P/E) multiple of 183.41X, significantly above the industry average of 15.04X, raising concerns about potential vulnerability to market shifts [11] Conclusion - While Upstart has shown extraordinary gains, its premium valuation suggests limited near-term upside, but long-term growth prospects remain promising due to AI innovations and favorable interest rate trends [13]