Buy Upstart Ahead of Its First Quarter Earnings

Stocks to buy

Upstart (NASDAQ:UPST) is one of the most interesting financial technology (fintech) plays on the market right now. And even though some analysts are waving warning flags, I like the prospects of UPST stock in a rising interest rate environment.

The company does lending differently than traditional banks. Instead of relying on credit scores, Upstart uses an artificial intelligence (AI)-powered lending platform that evaluates creditworthiness based on education and employment, among other factors.

Upstart says banks and lending institutions that use its platform can achieve higher approval rates and lower loss rates. Plus, its platform makes lending more accessible to people of all races, ages, genders and ethnicities, the company says. Because of the AI-driven automated platform, 70% of Upstart’s loans are approved instantly.

However, the year has been rough on UPST stock. It’s down more than 40% so far in 2022. And if you look back to October 2021, when Upstart was at its peak, the stock is down nearly 80%.

The company is expected to report earnings for the first quarter on Monday, May 9. It issued guidance for quarterly revenue growth of 65% from a year ago. Net income is expected to rise by 80%, and full-year sales are expected to jump by 65%.

Those numbers sound great until you compare them to what Upstart reported in the fourth quarter of 2021. At that time, Upstart showed year-over-year revenue growth of 252%, net income growth of more than 5,000% and profit growth of 261%. Upstart is a rapidly growing company, but it’s impossible to sustain those numbers for long. It will be interesting to see how the Street responds to strong — but not ridiculous — growth in the first quarter of 2022.

I’m also going to be interested in Upstart’s analyst call and how it plans to address the rapidly shifting economy. The Federal Reserve is tightening interest rates, and surely will do so again later this year. The cost of lending is going up and banks will be taking a close look at the loans they have to mitigate any damage.

Citi analyst Peter Christiansen recently lowered his firm’s price target on UPST stock from $350 to $180, but he calls it a “top contrarian buy.” In a research note, Christiansen said strong first-quarter results should help Upstart regain its lost momentum. He also noted rising interest rates could be an “important tailwind for future debt consolidation activity.”

I’m expecting UPST stock to get back to $100 in the coming days based on its earnings. Like Christiansen, I see this as a contrarian buy.

On the date of publication, Patrick Sanders did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.

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