Upstart Stock Up 20% in October – Time to Buy UPST Stock?

The price of Upstart stock has gone up over 20% so far in October following the addition of new lenders to its AI-powered loan platform and other positive news.

The latest leg higher for the company seems to have started in 7 September following a buy recommendation extended by Atlantic Equities’ upon initiating coverage of the fintech company even though the financial services firm set a conservative price target of $290 for UPST stock.

It is also important to note that Upstart has become a target of the retail trading army recently as well as indicated by comment volume about the stock within the popular Reddit messaging board Wall Street Bets.

In this regard, data from Swaggy Stocks show that comments about UPST stock have been steadily surging until reaching nearly 4% of the channel’s total volume in the past few days.

Can this fintech stock keep surging on the back of a strong support from the WSB army or have things gone too far for UPST stock already? In the following article, I’ll be assessing the price action and fundamentals of this innovative business to outline plausible scenarios for the future.

Upstart Stock – Technical analysis

Upstart stock started to surge rapidly following the release of the company’s Q2 2021 financial results as the business surprisingly swung to net profits during the three months ended on 30 June.

Only a few days after, the company reported that it had secured $575 million in capital through the issuance of convertible senior notes due in 2026 while Barclays upgraded the stock from neutral to buy while it nearly doubled its 12-month price target to $230 per share.

As a result, the price action has gone parabolic and yesterday was quite interesting as the stock surged over 10% during a session that saw above-average trading volumes.

This single-day uptick has not been prompted by any news and that highlights the possibility that retail traders may be pushing the price higher by piling on short-dated call options.

Given the considerable short-term distortion that such a move could cause, it would be hard to anticipate how high the stock could go. However, investors should keep in mind that UPST stock is trading 47% above its 50-day moving average and nearly 3 times above its 200-day moving average.

This indicates that the stock is heavily over extended and that could lead to a sharp return-to-the-mean kind of move in the future once bulls exhaust all their ammo.

Upstart Stock – Fundamental analysis

Upstart revenues have been surging at a rapid pace since 2017, moving from $51 million back then to $229 million last year at a compounded annual growth rate of 65%.

Perhaps notably, the company has reported positive operating profits every single of those four years and reported positive bottom-line profitability last year as well.

Upstart generates money by originating loans on behalf of its partner banks while it can also opt for reselling some of its loans to other institutions or retain them to collect interest on them.

The number of loans that have been processed by the business have nearly tripled since 2018 while the company’s percentage of loans that have been automatically processed by Upstart’s AI-powered solution has climbed from 53% to 70%. Finally, by the end of last year, adjusted earnings per share were $0.23.

At its current market capitalization of $29.5 billion, the company is trading at 39 times its forecasted revenues for 2021 ($750 million). This forecasted top-line result represents a nearly three-fold leap in the firm’s revenues and highlights the rate at which Upstart’s solution is being adopted by financial institutions to increase loan volume.

Historically low interest rates in the United States are one of the most important tailwinds currently lifting Upstart’s top-line results. Even though inflation is a major cause of concern, analysts don’t expect that the Federal Reserve will hike its benchmark rate until 2024 at least.

Meanwhile, growth opportunities for Upstart are quite ample and they include offering student loans, car loans, and other similar instruments. The firm could also start serving businesses soon and it may expand its operations to other corners of the world.

Upstart has already demonstrated the power of its business model and its ability to grow the business thus far by partnering with multiple financial institutions. At this pace, the company could soon push its top-line results to $5 billion (perhaps in 5 years or so) and that would make the current valuation quite conservative.

With this in mind, even though the valuation seems stretched based on its present numbers, the future for this business is quite bright and its expansion opportunities and total addressable market is sufficiently large to justify this $30 billion price tag.

Therefore, a dip in the stock price may be considered an attractive buying opportunity as the firm has the capacity to accelerate and improve the performance of the financial industry as a whole while making billions for investors in the process.

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