Fin-tech Upstart (UPST) has been tanking hard the last few days with no news and it reached a level where I decided to take a position. The company, founded by ex-Google leaders, brings an AI, machine learning approach to qualifying applicants for loans, and they have web-facing software making application easy and quick, branded under their own name and also available to loan partners to use, branded under their own names. UPST collects fees from loan partners for the approved applicants.
The company has had remarkable growth since they came public, and stock soared sky high, but has since tumbled back to earth even as growth continues and the company earns good money. The fear seems to be that rising interest rates and potential recession will interfere with their business, possibly mess up their ratings, though such fears don’t seem to have much basis in reality as far as I can tell. It mainly seems to be strong downward price momentum is shaking out more and more holders and feeding the fear in a positive feedback circle.
UPST was a darling of the Saul board, but a lot of them bailed out as the price dropped and dropped and dropped some more. There are still a lot over there who like it and they rebut the nay-sayers pretty effortlessly, IMO.
UPST initially entered business by qualifying applicants for unsecured personal loans, which has gone great, and now they’re moving into the auto loan arena in volume. Next up are small business loans and small dollar loans before eventually attacking the biggie: home loans, which will probably be a couple or few years off.
I bought a position today with average price ~$74/share, which is PE of ~52. The company is guiding for 65% growth in sales in the coming year, providing what I deem a reasonable value for the expected growth. The downward price momentum is strong, wouldn’t be surprised by a robust bounce back from being over-sold the last couple days, but I wouldn’t be surprised by further price erosion in the slightly longer term. They report earnings May 9th … last earnings report was superb but didn’t stop the price drop, but it seems like combination of growth and earnings will put a floor under the price before too long, though it could be substantially below current levels.
One of the TA rules of thumb I’ve heard in the past, which I don’t put much faith in but kind of watch anyway, is that stocks will tend to trade back through prior gaps. UPST today filled in some of a prior gap up from ~60 to ~80 back in March 2021. If the rule of thumb holds we’d expect UPST to trade back down to ~60. Which I don’t really trust, hence my buying today when it hit a level of valuation I could stomach. I’ll buy more if it does go into the lower 60s.