The noteworthy decline in the shares of this AI-based lending platform provider comes on the back of valuation concerns and an expected slowdown in growth rate. It is worth noting that Upstart stock skyrocketed this year (and is still up about 409%, even given the recent pullback), which drove its valuation higher.
Meanwhile, its top and bottom-line growth rate decelerated on a quarter-over-quarter basis. For context, Upstart’s revenues in Q3 rose by 18% on a quarter-over-quarter basis. This compares unfavorably with a 60% sequential growth in Q2.
Moreover, management’s Q4 revenue guidance reflects a further deceleration in sequential growth rate, to 12-16%.
While Upstart’s growth rate could moderate in the near term, TipRanks’ Stock Investors tool indicates that investors are adding its stock on the pullback. Per the tool, 3.1% of the investors who hold portfolios on TipRanks have increased their exposure to Upstart stock in the last 30 days.
Further, its growing TAM (total addressable market) and opportunities in the auto market provide a long runway for growth and support my bullish outlook.
During the Q3 conference call, Upstart’s CEO Dave Girouard said that the auto lending market is about six times bigger than the size of the personal loan market. Moreover, the company has tripled the number of dealers on its platform on a year-over-year basis. This positions Upstart well to capitalize on the large auto lending market.
Also, its growing scale, strong transaction volumes, and improvement in loan conversion rate augur well for growth.
Wall Street’s Take
Given the steep growth in its price in 2021 and valuation concerns, Wall Street maintains a cautiously optimistic outlook on Upstart stock. On TipRanks, Upstart has received 4 Buys, 2 Holds, and 1 Sell, for a Moderate Buy consensus rating.
Meanwhile, Upstart scores a 6 out of 10 from TipRanks’ Smart Score rating system, implying that UPST stock will likely perform in line with the market.
The average Upstart Holdings price target of $307.86 implies 48.3% upside potential to current levels.
Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.
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