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Bear of the Day: Upstart (UPST)

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Upstart (UPST - Free Report) is a Zacks Rank #5 (Strong Sell) that is an AI lending platform connecting consumers to bank partners.

The stock took off last year shortly after their IPO and was one of the hottest names in 2021. After some solid earnings reports, the stock ran from $30 to $400, topping out in October of 2021.

Since the tops, earnings have slowed and the stock has collapsed, falling back below the IPO price. While some investors might see the price as a bargain, there is clearly an issue after the company posted its worst quarter since going public.

About the Company

Upstart is headquartered in San Mateo, CA. The company was founded in 2012 and employs about 1,500 people.

Upstart is valued at $1.5 billion and has a Forward PE of 190. The company holds a Zacks Style Scores of “B” in Growth, but “D” in Momentum and “C” in Value.

Q3 Earnings

Since their IPO, Upstart had beaten earnings every quarter. But in early November the company reported their first miss, with a whopping 242% surprise to the downside.

Q3 came in at -$0.24 v the $0.07 expected and revenues came in at $157M v the $172M expected. The company guided Q4 adjusted net income at -$40M and revenue is now seen at a range of $125-145M v the $181M expected.

Bank partner originated loans were down 48% y/y and conversion on rate requests were 10% v 23% y/y.

Higher interest rates were an obvious culprit to the disappoint quarter and analysts do not see this improving.

Analyst Estimates

Over the last month, numbers have been taken down across all time frames.

For the current quarter, estimates have dropped into the negative, going from $0.09 to -$0.47. For the current year, estimates have fallen from $0.73 to $0.10, a drop of 86%.

Analysts don’t see things improving anytime soon. Number for next year have dropped from $1.42 to $0.49 over the last 30 days. This is a drop of 65% and is a red flag for investors to stay away until there is a turn around.

Along with estimates, price targets are headed lower. Goldman Sachs reiterated its Sell and dropped their price target to $11 from $14. Mizuho also reiterated their underperform and dropped their price target to $12 from $17.

Technical Take

The UPST chart is one that will be referenced for years when talking about the 2021 bubble. The stock went from $30 to $400 and is now under $20. It has been a death spiral lower that has given no opportunity to anyone buying a dip.

The 200-day moving average is up at $52.20 and way out of reach. The stock has been trading along the 50-day moving average since August, with that area being a selling point.

The low is $14.02 and the 61.8% retracement drawn from that low to November highs is $17.50. This spot is holding for now, but if the stock were to break that support area, the lows will likely come and a move under $10 is possible.

In Summary

Upstart will have many hurdles with interest rates staying elevated. The stock will likely continue grinding lower or trade sideways until the business can show growth like it did in years past.

For those interested in the sector, a better option might be (TBLA - Free Report) . The stock is a Zacks Rank #1 (Strong Buy) that is coming off a 500% EPS beat.

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Upstart Holdings, Inc. (UPST) - free report >> Ltd. (TBLA) - free report >>

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