Shares of Upstart (UPST, Financial) have surged by an impressive 44.71% following the announcement of its latest earnings report, highlighted by $162 million in revenue, which exceeded prior expectations. The recent favorable changes in inflation and interest rate forecasts have bolstered investor sentiment and contributed to this significant stock movement.
For the third quarter, Upstart reported a compelling financial performance with a 20% increase in revenue year-over-year and a 27% rise sequentially. Surpassing the anticipated $152 million, these results position the company for an optimistic outlook. Despite reporting a non-GAAP loss per share of $0.06, this still beat expectations, with the loss slightly higher than last year's $0.05. The management team projects further growth, with a predicted sequential revenue increase of 11.1% to reach $180 million in the upcoming quarter.
Previously, Upstart faced challenges due to fluctuating interest rates between 2021 and 2022. As Upstart sells its loans to outside investors, the rising cost of capital due to interest rate hikes led to a withdrawal of investors from its platform. This dramatically impacted the company's growth and stock price, which plummeted from $401 to approximately $12. However, the recent rate cuts by the Federal Reserve have re-attracted investors to Upstart's platform, aiding its recovery.
Currently, Upstart's stock is trading at approximately $80.27, a substantial improvement but still significantly below its previous peak. It's noteworthy that the stock's price is close to its one-year high, indicating a strong recovery trajectory.
From a valuation perspective, Upstart exhibits a GF Value estimation of $26.39, marking the stock as significantly overvalued at its current trading price. Despite a price-to-book ratio of 12.02 and an EV-to-revenue ratio of 14.81, concern remains over its financial strength, which is considered poor due to high debt levels. Additionally, insider selling activity and a decline in revenue per share over the last five years present potential risks for investors.
The positive note is Upstart's Beneish M-Score of -2.35, indicating it is unlikely to be a manipulator. The company's predictability score stands at 0, suggesting that the financial outcomes may vary considerably, thereby requiring investors to approach with an informed perspective.
