No. of Recommendations: 3
the economic news re: interest rates increasing, big-ticket item costs (across the board) increasing, and other generally negative news for the economy here in the US could be the reason we continue to see UPST sliding pretty much daily and I'm not convinced that the negativity seems to be overdone yet.
Fair enough. :) Personally, I've been taking more notice of the signs of inflation strongly slowing in recent months. I do think we'll see another rate increase or two from the Fed, and that means that shorter term interest rates, like Upstart deals with, will likely continue up in the coming year. And that will continue, to some extent, the double whammy of devaluing the loans they have on their books and decreasing the demand and supply for their loans.
But, Upstart claims that they have already tweaked their algorithms for a significant worsening of the economic environment, so my hope would be that if inflation is coming down already, like it seems to be, perhaps Upstart is already seeing the worst effects of this episode.
With the latest drop, their market cap is down to $1.01 billion, less now than their trailing 12 month sales of $1.06 billion. The quarter ending March 2022 saw trailing 12 months GAAP earnings of $158 billion, mostly on the strength of their personal loan product. They've been expanding the base of their business since then, with ongoing roll-out of automobile refinance and new car loans and small business loans. The business is built to earn money at a scale far higher than their market cap implies.
There's obviously a lot of worry and skepticism out there about how well they can come through this rough patch. Some observers expect them to go to zero, to keep hemorrhaging cash to the tune of $100 billion/quarter until they die. Another potential outcome that would rob an investor of potential upside is if the company is acquired by a much larger company, where coming rapid growth of Upstart isn't reflected by the larger company.
It's speculative, no doubt. Price to book is 1.4, so it can drop another ~30% before it gets down to book value.
