UPST Stock Will Continue to Fall Due to Dilution, Valuation, and Financials

Today we are looking at Upstart Holdings, Inc. (NASDAQ: UPST), to determine if the UPST stock is a good buy. We will look at UPST financial ratios, analyst ratings, and valuation to determine a UPST stock forecast for 2025. What does UPST Do? Upstart Holdings, Inc. operates a cloud- based artificial intelligence (AI) lending platform in the United States. The company's platform aggregates consumer demand for loans and connects it to its network of the company's AI- enabled bank partners. Its platform connects consumers, banks, and institutional investors through a shared AI lending platform. Upstart Holdings, Inc. was founded in 2012 and is headquartered in San Mateo, California. Laying out Informations for a UPST Stock Forecast Who are Upstart Holdings, Inc.'s Competitors? In order to undergo a comparable analysis (to determine UPST stocks value), we need to first outline who UPST's competitors are. These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to UPST, and have a market cap similar to UPST (if possible). By keeping this in mind, I found the following list of companies to be some of UPST stocks closest competitors: CACC, LU, LC, and GDOT UPST Stock News and Information Morgan Stanley Analyst Cuts UPST Price Target to $19 Shares of Upstart (NASDAQ:UPST) are down over 9% in pre-open after Morgan Stanley analyst James Faucette downgraded to Underweight from Equal Weight. as a result of “Deteriorating underwriting performance and increasing required returns from institutional partners"  James Faucett slashed his price target to $19.00 (from $88.00) which is quite the statement. The articles stated that "The key pillar of the downgrade is that Faucette now sees Upstart as a cyclical platform rather than a secular one, and that tailwinds from 2021 are now becoming headwinds in 2022". Upstart Holdings, Inc.'s Earnings are (INSERT) UPST Earnings (Yearly): UPST Gross Profit: In FY 2021, UPST experienced a yearly increase in their gross profit of $613.84M (or 269.7%) resulting in a total gross profit of $841.44M. This increase is good, and is a good start to their 2021 earnings, however, there is still more to see so let's not get our hopes too high just yet. UPST EBITDA: In FY 2021, UPST experienced a yearly increase in their EBITDA of $127.89M (or 767.73%) resulting in a total EBITDA of $144.55M. This increase (of 767.73%) stems from the fact that UPST experienced a increase in their gross profits of 269.7% (as we saw in the previous bullet point). UPST Net Income: In FY 2021, UPST experienced a yearly increase in their net income of $129.46M (or 2,164%) resulting in a total net income of $135.44M. UPST EPS: As a result of UPST's increase in net income of $129.46M, UPST's EPS also increased (by $7.39) from $0.34 in FY 2020 to $7.73 in FY 2021 Overall, it seems as though UPST had a great financial performance in 2021. However, something of concern is that they reported $0 in cost of revenues, which is unusual. Furthermore, the growth rates in all of the metrics were very high (and likely not sustainable). As a result we will look to their more recent Q1 2022 earnings to see if their great performance can persist or if it was a one-time thing. UPST Earnings (Quarterly): UPST Revenues: In Q1 2022, UPST experienced a quarterly increase in revenues of $11.63M (or 3.9%) resulting in a total revenue figure of $310.14M. UPST Gross Profit: In Q1 2022, UPST experienced a quarterly increase in their gross profit of $11.63M (or 3.9%) resulting in a total gross profit of $310.14M. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between Q1 and Q4. UPST EBITDA: In Q1 2022, UPST experienced a quarterly decrease in their EBITDA of $-25.85M (or -41.49%) resulting in a total EBITDA of $36.45M. This decrease (of -41.49%) stems from the fact that UPST experienced a increase in their gross profits of 3.9% (as we saw in the previous bullet point). UPST Net Income: In Q1 2022, UPST experienced a quarterly decrease in their net income of $-26.25M (or -44.54%) resulting in a total net income of $32.69M. UPST EPS: As a result of UPST's decrease in net income of $-26.25M, UPST's EPS also decreased (by $-0.32) from $0.71 in Q4 2021 to $0.39 in Q1 2022 Overall, it seems as though UPST had a poor financial performance as many of their financial metrics shrunk, most notably their EPS (by $-0.32), as well as their net income (by $-26.25M), and their EBITDA (by -$25.85M). This shows that their fantastic earnings in 2021 are not very sustainable, and that we may need to approach the UPST stock with some caution. However, despite their seemingly poor financial performance, UPST stock beat their EPS estimate by $0.10 (or 19.61%), as they reported an EPS of $0.61 for the quarter (compared to their estimated EPS of $0.51). High Historical and Expected UPST Stock Dilution? As part of their Q1 2022 earnings release, UPST stated that they currently have 84.23M Shares Outstanding (weighted average), which is up 1.61M shares (from 82.62M shares outstanding in Q4 2021). This represents a 2% quarterly share dilution which is rather high. As a result, you should definitely be aware of this and factor it into your decision making process.Furthermore, UPST stock has up to 16.19M of shares that they can issue (thereby diluting UPST's stock). This maximum dilution for the period would only have a dilutionary effect on UPST of 16.12%, which is once again very high. It seems as though high dilution may be a problem for UPST in the future as they have over 16M shares that they can issue thereby diluting the UPST Stock. Furthermore, since 2020, UPST has averaegd a CAGR in their shares outstanding of 12%, so it os safe to assume that most of the 16M shares will be issued. What are Analysts Rating UPST Stock as? Here is the current spread of UPST stock ratings. In total there are 33 UPST stock ratings, which fall in the following categories. 18 Buys 11 Holds 4 Sells Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if UPST stock is a buy or sell. Most analysts still remain bullish on the UPST stock despite it dropping over 90% in an 8 month timeframe (I guess they might finally be at/near fair value?). My UpStart Stock Forecast 2025 Using a Comparable Analysis to Determine a UpStart Price Forecast 2025 Price to Book (P/B): UPST's current P/B ratio is 3.46, compared to the average P/B ratio of UPST's peers being 2.11. This implies that UPST is overvalued and their share price should change by a factor of -39.02% to be at fair value (based on UPST's P/B compared to the P/B of their peers). Price to Equity (P/E): UPST stock P/E ratio is currently 21.74, compared to the average P/E ratio of UPST's peers being 12.04. This implies that UPST is overvalued and their share price should change by a factor of -44.62% to be at fair value (based on UPST's P/E compared to the P/E of their peers). Overall, UPST stock is overvalued and needs to experience a change in stock price of (an average of) -41.82% to be considered “at fair value”. Is UPST a good stock to buy right now? Due to my UpStart Stock forecast for 2025 implying that UPST is overvalued and needs to experience a price change of -41.82% in order to be at their fair value; their recent Q1 2022 financials showing that previous levels of growth may not be sustainable; and high historical and potential UPST stock dilution, I have concluded the following. Despite analysts remaining bullish, and great yearly (2021) financial reports, I believe that the UPST stock is overvalued. Based off of my UpStart Stock Forecast for 2025, we may see the UPST stock drop upwards of 40% over the next few years.

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UPST Stock Will Continue to Fall Due to Dilution, Valuation, and Financials

Jun 29, 2022

bearish

general Analysis

[6 min Read]

blog post cover photo

Photo by: Towfiqu barbhuiya

Today we are looking at Upstart Holdings, Inc. (NASDAQ: UPST), to determine if the UPST stock is a good buy. We will look at UPST financial ratios, analyst ratings, and valuation to determine a UPST stock forecast for 2025.

What does UPST Do?

Upstart Holdings, Inc. operates a cloud- based artificial intelligence (AI) lending platform in the United States. The company's platform aggregates consumer demand for loans and connects it to its network of the company's AI- enabled bank partners. Its platform connects consumers, banks, and institutional investors through a shared AI lending platform. Upstart Holdings, Inc. was founded in 2012 and is headquartered in San Mateo, California.

Laying out Informations for a UPST Stock Forecast

Who are Upstart Holdings, Inc.'s Competitors?

In order to undergo a comparable analysis (to determine UPST stocks value), we need to first outline who UPST's competitors are.

These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to UPST, and have a market cap similar to UPST (if possible).

By keeping this in mind, I found the following list of companies to be some of UPST stocks closest competitors:

CACC, LU, LC, and GDOT

UPST Stock News and Information

Morgan Stanley Analyst Cuts UPST Price Target to $19

Shares of Upstart (NASDAQ:UPST) are down over 9% in pre-open after Morgan Stanley analyst James Faucette downgraded to Underweight from Equal Weight. as a result of “Deteriorating underwriting performance and increasing required returns from institutional partners"

James Faucett slashed his price target to $19.00 (from $88.00) which is quite the statement. The articles stated that "The key pillar of the downgrade is that Faucette now sees Upstart as a cyclical platform rather than a secular one, and that tailwinds from 2021 are now becoming headwinds in 2022".

Upstart Holdings, Inc.'s Earnings are (INSERT)

UPST Earnings (Yearly):

  • UPST Gross Profit: In FY 2021, UPST experienced a yearly increase in their gross profit of $613.84M (or 269.7%) resulting in a total gross profit of $841.44M. This increase is good, and is a good start to their 2021 earnings, however, there is still more to see so let's not get our hopes too high just yet.
  • UPST EBITDA: In FY 2021, UPST experienced a yearly increase in their EBITDA of $127.89M (or 767.73%) resulting in a total EBITDA of $144.55M. This increase (of 767.73%) stems from the fact that UPST experienced a increase in their gross profits of 269.7% (as we saw in the previous bullet point).
  • UPST Net Income: In FY 2021, UPST experienced a yearly increase in their net income of $129.46M (or 2,164%) resulting in a total net income of $135.44M.
  • UPST EPS: As a result of UPST's increase in net income of $129.46M, UPST's EPS also increased (by $7.39) from $0.34 in FY 2020 to $7.73 in FY 2021

Overall, it seems as though UPST had a great financial performance in 2021. However, something of concern is that they reported $0 in cost of revenues, which is unusual. Furthermore, the growth rates in all of the metrics were very high (and likely not sustainable). As a result we will look to their more recent Q1 2022 earnings to see if their great performance can persist or if it was a one-time thing.

UPST Earnings (Quarterly):

  • UPST Revenues: In Q1 2022, UPST experienced a quarterly increase in revenues of $11.63M (or 3.9%) resulting in a total revenue figure of $310.14M.
  • UPST Gross Profit: In Q1 2022, UPST experienced a quarterly increase in their gross profit of $11.63M (or 3.9%) resulting in a total gross profit of $310.14M. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between Q1 and Q4.
  • UPST EBITDA: In Q1 2022, UPST experienced a quarterly decrease in their EBITDA of $-25.85M (or -41.49%) resulting in a total EBITDA of $36.45M. This decrease (of -41.49%) stems from the fact that UPST experienced a increase in their gross profits of 3.9% (as we saw in the previous bullet point).
  • UPST Net Income: In Q1 2022, UPST experienced a quarterly decrease in their net income of $-26.25M (or -44.54%) resulting in a total net income of $32.69M.
  • UPST EPS: As a result of UPST's decrease in net income of $-26.25M, UPST's EPS also decreased (by $-0.32) from $0.71 in Q4 2021 to $0.39 in Q1 2022

Overall, it seems as though UPST had a poor financial performance as many of their financial metrics shrunk, most notably their EPS (by $-0.32), as well as their net income (by $-26.25M), and their EBITDA (by -$25.85M). This shows that their fantastic earnings in 2021 are not very sustainable, and that we may need to approach the UPST stock with some caution.

However, despite their seemingly poor financial performance, UPST stock beat their EPS estimate by $0.10 (or 19.61%), as they reported an EPS of $0.61 for the quarter (compared to their estimated EPS of $0.51).

High Historical and Expected UPST Stock Dilution?

As part of their Q1 2022 earnings release, UPST stated that they currently have 84.23M Shares Outstanding (weighted average), which is up 1.61M shares (from 82.62M shares outstanding in Q4 2021). This represents a 2% quarterly share dilution which is rather high. As a result, you should definitely be aware of this and factor it into your decision making process.Furthermore, UPST stock has up to 16.19M of shares that they can issue (thereby diluting UPST's stock). This maximum dilution for the period would only have a dilutionary effect on UPST of 16.12%, which is once again very high. It seems as though high dilution may be a problem for UPST in the future as they have over 16M shares that they can issue thereby diluting the UPST Stock. Furthermore, since 2020, UPST has averaegd a CAGR in their shares outstanding of 12%, so it os safe to assume that most of the 16M shares will be issued.

What are Analysts Rating UPST Stock as?

Here is the current spread of UPST stock ratings. In total there are 33 UPST stock ratings, which fall in the following categories.

  • 18 Buys
  • 11 Holds
  • 4 Sells

Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if UPST stock is a buy or sell. Most analysts still remain bullish on the UPST stock despite it dropping over 90% in an 8 month timeframe (I guess they might finally be at/near fair value?).

My UpStart Stock Forecast 2025

Using a Comparable Analysis to Determine a UpStart Price Forecast 2025

  1. Price to Book (P/B): UPST's current P/B ratio is 3.46, compared to the average P/B ratio of UPST's peers being 2.11. This implies that UPST is overvalued and their share price should change by a factor of -39.02% to be at fair value (based on UPST's P/B compared to the P/B of their peers).
  2. Price to Equity (P/E): UPST stock P/E ratio is currently 21.74, compared to the average P/E ratio of UPST's peers being 12.04. This implies that UPST is overvalued and their share price should change by a factor of -44.62% to be at fair value (based on UPST's P/E compared to the P/E of their peers).

Overall, UPST stock is overvalued and needs to experience a change in stock price of (an average of) -41.82% to be considered “at fair value”.

Is UPST a good stock to buy right now?

Due to my UpStart Stock forecast for 2025 implying that UPST is overvalued and needs to experience a price change of -41.82% in order to be at their fair value; their recent Q1 2022 financials showing that previous levels of growth may not be sustainable; and high historical and potential UPST stock dilution, I have concluded the following.

Despite analysts remaining bullish, and great yearly (2021) financial reports, I believe that the UPST stock is overvalued. Based off of my UpStart Stock Forecast for 2025, we may see the UPST stock drop upwards of 40% over the next few years.

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UPST

Upstart Holdings, Inc.

31.12

-0.01
-0.03%

Return

-
Position Return %
0.00
Position Return
35.85
Price When Posted

Metrics

32.27
Target Price
8/ 10
Confidence
1-3 Years
Timeframe
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