"Dr.” Ears upcoming UPST diagnosis

Hi Ears,

Today, 5/10/2022, UPST stock price closed at $33.61, a drastic drop of 56.4%.

On his board, Champico33 posted: If the company [UPST] somehow manages to survive through the year and comes out with a pulse after any recession, then it might be worth another look.

Ears response: They’ve most recently guided for 47% top-line growth in 2022 instead of the previous guide of 67% growth. Looks like they expect positive cash flow. Loans on the balance sheet they claim not an issue. When you say manage to survive, do you mean if they manage to meet these new targets, or are you seeing some scenario where they go under this year?

I previously posted here, a Michael Mauboussin and Dan Callahan, CFA statement: The value of a financial asset is the present value of future cash flows. If you don’t believe that, please put this aside and resume your normal daily activities. If you do believe that, you recognize that you have to grapple with an assessment of the magnitude and timing of cash flows as well as the appropriate rate at which to discount them.

Since cash flow is the living “blood” of a company, I look forward to your ongoing analysis and assessment of UPST that pinpoint symptoms that caused and manifested in today’s stock price crash.

In medical terms, did UPST suffer:

(a) a Stroke?
Sometimes called a brain attack, a stroke occurs when something blocks blood supply to part of the brain or when a blood vessel in the brain bursts.
In either case, parts of the brain become damaged or die. A stroke can cause lasting brain damage, long-term disability, or even death.

(b) a Transient Ischemic Attack (TIA or “mini-stroke”)?
A TIA is a warning sign of a future stroke.
A TIA is a medical emergency, just like a major stroke.
Strokes and TIAs require emergency care. Call 9-1-1 right away if you feel signs of a stroke or see symptoms in someone around you.
There is no way to know in the beginning whether symptoms are from a TIA or from a major type of stroke.
Like ischemic strokes, blood clots often cause TIAs.
More than a third of people who have a TIA and don’t get treatment have a major stroke within 1 year. As many as 10% to 15% of people will have a major stroke within 3 months of a TIA.
Recognizing and treating TIAs can lower the risk of a major stroke. If you have a TIA, your health care team can find the cause and take steps to prevent a major stroke.

(c) a Heart Attack? A heart attack happens when the flow of oxygen-rich blood in one or more of the coronary arteries, which supply the heart muscle, suddenly becomes blocked, and a section of heart muscle can’t get enough oxygen. The blockage is usually caused when a plaque ruptures.

(d) a Cardiac Arrest? When a person’s heart stops beating, they are in cardiac arrest. During cardiac arrest, the heart cannot pump blood to the rest of the body, including the brain and lungs. Death can happen in minutes without treatment. CPR uses chest compressions to mimic how the heart pumps.
Prevention. Reduce your risk of sudden cardiac arrest by getting regular checkups, being screened for heart disease and living a heart-healthy lifestyle.
Most SCA (Sudden Cardiac Arrest) victims survive if they get help very quickly. But SCA is fatal 95% of the time. “Only about 5% of those who have a sudden cardiac arrest survive long enough to get to — and then be discharged from — the hospital alive,” notes cardiologist Bruce Wilkoff, MD, an expert in heart rhythm disorders.

(e) None of the above, something else.

I am not a medical doctor, but predict TIA for UPST.



Hi Ray,

You gave me a good laugh with your imaginative way of framing the problem. Thanks!

Here’s my choice: (e) None of the above, something else.

Before I explain my choice, let’s look at what the market is saying.

Dr. Market and Mr. Moody

My spiffy revised X2 Mauboussin Reverse DCF Turbo-Charged Model has ingested the latest
quarterly data and run through several scenarios. Here are just a couple: Dr. Market is
saying the current price of $28 implies a zero revenue growth rate for UPST at a discount
rate of 10% and a 10% revenue growth rate for UPST at a discount rate of 20%. Both these
scenarios assume a 15% profit margin, 8% working capital investment rate, 2% fixed capital
investment rate, inflation at 5%, and tax rate increasing from 5% to 21% over five years.

Now we know that on occasion Dr. Market can turn into Mr. Moody. So I guess if we look
at what Dr. Market is telling us, maybe it’s just Mr. Moody going maniac.

Answer: None of the above, something else.

I wish UPST would join that select group of companies that avoids giving guidance. It just
confuses things for everyone, including them. A new, growing business needs time to work
things out and react to new situations, espically in bringing new products to market and
dealing with everything going on in the world today. What I’m hearing is a lot of noise.

I’ve been buying yesterday and today at these prices where Mr. Moody is shouting FIRE!

Best to you,


Hi Ears,

Today’s 5/18/22 closings:

Dow 30:    -1,164.52   -3.57%
S&P 500:     -165.17   -4.04%
NASDQ:       -566.37   -4.73%

**UPST:    48.37/share   +3.67%**

Your recent UPST investment is up 73% to date since your initial buy at $28/share on 5/10/22.

Ears, nice call on a buying opportunity for a long term-investment!

Thanks to your assessment of Mr. Market, I changed my choice to “Heartburn” aka Mr. Moody shouting FIRE.

I wish that I had your talent for proffering concise, cogent arguments with quick, sensible back up analysis.

Best regards,

1 Like

Hi Ray,

Thanks for the kind words albeit undeserved.

It is a long term investment for me. The $28 price implied the market saw no competitive
advantage period for UPST going forward or any ability for UPST to generate returns above
their cost of capital. My assessment differs which is why I bought. The fact that the price took off
after that was just luck and says nothing about whether my decision was good or bad.

Much has been made about the recent CFO conversation with the Barclay analyst. From my view it
was mostly more noise. The most fascinating part of the conversation was something no one picked
up on – he made an interesting observation about the auto refi business vs new auto business. They
chose the refi business to get started because their model gives them an advantage in capturing
existing loans and is most like their personal loan business. But if their new auto loan business
succeeds it will be at the expense of their refi business. The customer will already be getting the
best rate from their new auto program and won’t need to refi!

Best to you,