Upstart Stock Down 29% in December – Time to Buy Upstart Stock?

The price of Upstart stock has declined 29% so far in December as the downtrend that started back in November when the company released its Q3 2021 earnings report has accelerated.

Not much has happened to the company since that earnings report came out. However, macroeconomic conditions have favored a pronounced risk-off move in the markets and growth stocks such as Upstart have suffered as a result.

On 3 December, Third Point LLC – a hedge fund founded and managed by billionaire investor Daniel Loeb – reportedly sold a total of 805,000 shares at a price ranging between $160 and $184 per share totaling around $139 million at the mid-point of that range.

Third Point has been a net seller of Upstart stock for most of the third quarter of 2021 and these disposals have continued well into the fourth quarter. Considering the fact that the stock went rose over 1,200% at some point since Upstart went public, the fund might just be cashing in after this huge surge.

Meanwhile, on 9 December, Morgan Stanley initiated coverage of the stock with a Neutral recommendation and a price target of $200 per share. The stock declined 7.6% on that day and has continued to move lower since then.

The American investment bank indicated that most of the company’s future potential was already priced into its valuation back then at around $180 per share.

What can be expected from this fintech stock as we are heading into the beginning of a new year? In this article, I’ll be assessing the price action and fundamentals of Upstart stock to draft plausible scenarios for the future.

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Upstart Stock – Technical Analysis

Back in November when I last wrote about Upstart, I highlighted multiple signals that were pointing to a bearish outlook including bearish divergences in the stock’s momentum indicators.

I emphasized that a break below the $255 support area could lead to a significant decline in the stock with a first target set at $150 per share.

This is exactly what has happened in the past few weeks as the decline has led to the closing of the open price gap I pointed back then as the support area to watch if a break below the $255 level occurred.

Curiously, the decline has temporarily paused at this exact level at $145 per share and momentum indicators are now pointing to a potential exhaustion of the downtrend.

In this regard, the Relative Strength Index (RSI) has not posted a lower low even though the price has continued to decline while the MACD has shortened its distance with the signal line and has even attempted to cross above it a couple of times. Meanwhile, the MACD’s histogram readings are now slightly negative.

Moving forward, traders could consider two possible scenarios for UPST stock:

1. The stock breaks below the $145 level and heads to the next horizontal support found at $110 per share for a total downside risk of 24%. This is, in my view, an unlikely scenario unless the Federal Reserve’s speech today rattles the market.
2. The stock bounces off the $145 level and trades range-bound for a while.

Even though the decline has lost steam, this does not necessarily mean that there is upside ahead for Upstart stock as negative sentiment seems to be dominating the picture for growth stocks as a whole and, until that changes, the outlook for the stock is neutral to bearish.

Upstart Stock – Fundamental Analysis

At its current market capitalization of $12 billion, Upstart’s trading multiples have declined significantly compared to where they were when I last wrote about the stock.

For 2022, analysts are estimating that the company will generate total revenues of $1.14 billion and adjusted earnings per share of $2.4.

Using these metrics, UPST stock is displaying a forward P/S ratio of 10x and a forward P/E ratio of 60x respectively.

For a company with such an innovative business model, the current valuation multiples seem very attractive and make Upstart an interesting long-term pick to consider.

It is also important to note that Upstart is already cash flow positive and reported $1 billion in cash and equivalents that it plans to deploy to keep securing the required alliances to keep growing its customer base and total addressable market.

Overall, both the technical and fundamental situation of UPST stock favor a mid-term bullish outlook.

With this in mind, any decline at this point could be considered an opportunity to acquire a piece of this promising company at a more attractive price.

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