Sign InUPST Stock Shows Growth Potential Despite Recent Dip, Hold Recommendation
Summary
Upstart Holdings, Inc. (UPST) experienced a significant decrease in stock price, but has shown substantial growth this year; despite concerns over profitability and addressable market, its AI platform and potential for long-term gains make it a recommended Hold, with the upcoming earnings announcement playing a key role in its direction.
Stock Overview and Market Performance
Upstart Holdings, Inc. (UPST), a NASDAQ-listed company, closed at $60.73 on August 04, 2023, noting a significant decrease of 10.97%, equivalent to $7.48. The stock traded between $59.51 and $68.21 during the day. A high trading volume of 13.55 million shares were observed, higher than the average volume of 11.71 million shares. The market capitalization stood at $5.02 billion.
On the yearly spectrum, UPST's stocks fell within the range of $11.93 at the lowest point and $72.58 at the peak. Currently, the Relative Strength Index (RSI) 14 stands at 58, signifying a neutral market trend. The Moving Average Convergence Divergence (MACD) over a 3-month period is 10.49, indicating a bullish market sentiment. It is noteworthy that the stock’s price significantly outperforms both the 50-day and 200-day moving averages, currently at $41.58 and $23.46 respectively.
Despite the recent dip, UPST's stock has grown considerably this year, with reports suggesting that it gained nearly 400% since May 2023.
Financial Fundamentals and Earnings Preview
On the fundamental side, the Price-to-Earnings (P/E) ratio is currently at -15.9 times coupled with negative Earnings Per Share (EPS) of -$3.82 which signals a loss-making situation for the company. The number of outstanding shares is 82.67 million. The company will announce earnings on August 08, 2023, which could lead to significant stock price movements.
However, a recent economic recovery and interest in artificial intelligence have likely contributed to the stock’s recent success, creating a positive sentiment towards it. The company's AI platform has been lauded for its impressive capabilities and seemingly offers fewer default rates than traditional methods used by large US banks. This key factor seems to have attracted attention towards UPST from investors.
UPST's discounted cash flow (DCF) value is calculated at $65.83, above the last close price, suggesting that the stock might be undervalued. The stock has also seen a high target price estimate of $180 and a low estimate of $10 with a median estimate of $20.5, revealing a wide range of expectations.
Market Sentiment and Outlook
Given its year-to-date performance, UPST has gained quite a bit of attention from investors, with news of a $4 billion loan purchase commitment from an investor triggering a buying spree. However, this high pace rally invites questions about its sustainability over the long term.
Despite its recent rally, UPST has encountered criticism over its inconsistent profitability and concerns over a potentially limited addressable market.
Recommendation
Considering the notably high stock price compared to the moving averages, the MACD showing bullish market momentum and the discounted cash flow (DCF) valuation, the stock appears to have growth potential. However, the negative EPS and P/E ratio, along with the recent sharp price drop, suggest a degree of caution.
Moving into next week, earnings will play a significant role in determining the stock's direction. Positive earnings could trigger another buying spree, while negative earnings could lead to a sell-off.
In summary, it is recommended to Hold UPST stock. The potential associated with the company's AI platform is intriguing and could lead to significant long-term gains. However, concerns over its profitability and recent volatility necessitate a cautious approach until after the earnings announcement. Pending positive earnings, the recommendation may lean more towards Buy in the future.
