Upstart Holdings: Assessing Stock Potential Amid Interest Rates

Upstart Holdings has seen a remarkable 51% growth for its shareholders, outpacing the S&P 500. As interest rates remain a significant factor, investors are encouraged to examine Upstart's future potential in this volatile market.

Date: 18-01-2025

AI Rating: 5

Market Performance and Volatility
Upstart Holdings (NASDAQ: UPST) achieved an impressive 51% increase last year, surpassing the broader market represented by the S&P 500. However, the company operates in a volatile sector closely tied to interest rate fluctuations. Investors have to consider both past performance and future volatility when evaluating stock potential.

Dependence on Interest Rates
The analysis reveals that Upstart's business model is significantly impacted by interest rate trends. Sales have fluctuated, showing a decline since mid-2022 but with some recovery recently. The company's stated sales growth for Q1 2023 was at a negative (67%), followed by a positive increase of 40% in Q2 2023. This volatility indicates heavy reliance on external economic factors. Furthermore, despite recent improvements, Upstart has faced net losses for ten consecutive quarters, specifying a net income of ($129) million in Q1 2023.

Future Growth Prospects
In spite of difficulties, Upstart's adaptation to new products such as home equity lines of credit (HELOC) shows promise for future diversification and revenue generation. Analysts project sales of $599 million in 2024 and $822 million in 2025, alongside losses per share reducing from $0.47 in 2024 to a profit of $0.57 in 2025. This expectation hints at a potential turnaround.

Valuation Concerns
The current valuation seems high as Upstart trades at approximately ten times forward one-year sales, with no positive earnings or cash flow. These factors raise questions about the stock's attractiveness to long-term investors.

Stocks: UPST