Upstart Holdings (NASDAQ 🙂 was founded by former employees of Google (NASDAQ :). It is one of the newest companies in tech. Upstart is a cloud-based AI lending platform.

The platform connects consumers to AI-enabled banks and helps them assess consumer demand for loans of high quality. Among these partners are First National Bank of Omaha and First Federal Bank of Kansas City. Accion Chicago is another.

Customers on Upstart’s platform can benefit from lower approval rates and interest rates as a result of this connection. They also get a seamless, digital experience that is smooth and efficient.

Gleichzeitig, bank partners of the company benefit from new customers, reduced fraud and loss rates and improved automation in the lending process. This stock has been neutral to me. TipRanks shows Upstart stock charts.

Perform Snowballing

Upstart’s value proposition is very encouraging as we progress, and its relationship growth to bank partners builds great momentum.

Its Q2 results show this clearly. Total revenue was $194 million, an increase of 1,018% year-over-year, with total fee revenue coming in at $187 million, an expansion of 1,308% year-over-year.

Because of its AI-powered frictionless business model, Upstart has a gross margin above 90%. Upstart’s impressive growth rates and its ability to reinvest the vast majority of its profits into the business have resulted in a high level of profitability. In Q2, net margins were nearly 20%, bringing in $36.3million.

Upstart can also take advantage of strong flywheel effects, which could be used to power practically endless business growth.

One example is that better borrowers get lower APRs, which in turn leads to more borrower choice, which ultimately leads to lower losses. This then leads back to lower APRs, for better-qualified borrowers.

A Stock That’s Too Pricey

Upstart is gaining popularity and the market has high expectations.

The forward P/S/E and current P/E of the stock are currently 26.6 and 256.7. If the company’s revenue grows at 150% per year (management projects a rate of 228% growth for FY 2021), then these multiples should not be too surprising.

Current investors have little or no safety margin. The stock might experience significant losses if the rate of growth slows.

Wall Street’s Take

Upstart Holdings is a strong buy consensus rating based upon six Buys and one Hold in the last three months. There have been no Sells.

At $261.29, the average UPST price target implies 17.4% downside potential, nonetheless supporting that Upstart is indeed likely overvalued here.

Disclosure: Nikolaos Sismanis had no position in the securities listed in this article at the time it was published.

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