Upstart's Supercharged Stock: To Buy or Not?

Upstart(UPST -1.27%) has soared 200% in the past six months, leaving many investors wondering if it's still a bargain. The fintech company's stock surged after two consecutive quarters of well-received financial updates, with revenue up 20% year over year and a net loss per share of $0.07, better than analyst estimates. However, shares have since pulled back 18% from their recent high. Let's dive into Upstart's recent performance, potential risks, and challenges to determine if it's still a buy.

Upstart's AI-driven lending platform has been a significant driver of its revenue growth and stock price appreciation. The company's ability to leverage AI for better risk assessment and lower borrowing costs has positioned it as a leader in the online lending space. However, investors should be aware of several factors that could impact Upstart's future performance and stock price trajectory.

Firstly, Upstart's recent growth is partly due to easy comparisons, as sales fell 14% in the year-ago period. The company will face tougher comparisons in the coming quarters, which could slow down its growth rate. Additionally, Upstart is not yet profitable, reporting a total net loss of $126 million through the first nine months of 2024. While its recent quarterly net loss of $7 million was an improvement, the company still needs to prove it can consistently generate positive earnings.

Another concern is Upstart's sensitivity to macroeconomic forces. The company thrived in 2020 and 2021 but struggled in subsequent years as economic conditions deteriorated. If the macroeconomic environment takes a turn for the worse again, Upstart could face significant headwinds.

Lastly, shares of Upstart trade at a high valuation, with a price-to-sales ratio of 11.8, above their historical average. While the current valuation may reflect the company's strong performance, it also means there is less margin for error if the company's growth slows or stumbles.

In conclusion, while Upstart's recent performance has been impressive, investors should be aware of the potential risks and challenges that lie ahead. The company will need to continue delivering strong results and prove its long-term profitability to justify its high valuation. Nevertheless, Upstart's AI-driven lending platform and strong financial performance could make it an attractive long-term investment for those willing to take on the risks.

Upstart's stock price performance over the past year can be seen in the table below:

As investors consider whether Upstart is still a buy, it's essential to evaluate the company's potential risks and challenges. Although Upstart has shown impressive growth, investors should be cautious and consider the potential impact of these risks on Upstart's future performance. If the company can demonstrate consistent growth and profitability, investors may find the stock an attractive long-term buy. However, investors should be prepared for potential pullbacks or market corrections.

Ultimately, the decision to invest in Upstart will depend on individual investors' risk tolerance and investment goals. While Upstart's recent performance has been encouraging, investors should weigh the potential risks and challenges before making a decision.