If you're in my line of work, you quickly start to roll your eyes every time you see a business claim that it's reinvented the wheel with artificial intelligence (AI). Following another blowout quarter, nobody's rolling their eyes at Upstart (UPST -2.87%) and its AI-fueled lending platform.
In fact, if you're looking for a great fintech stock to buy right now, you'll have a hard time finding a better option than Upstart. Here are three important reasons.
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1. It's not a lender
If queasiness with alternative lending products like Affirm's buy now, pay later model and the losses it produces caused you to overlook Upstart in the past, I have good news: Upstart doesn't actually lend anyone money. Instead, lenders pay Upstart to evaluate consumer credit risk based on more data than an old-fashioned FICO score.
The three-digit FICO score is becoming less important by the minute, thanks in large part to Upstart. Over the past three months, three more lenders on Upstart's platform stopped requiring a minimum FICO score, raising the total to seven.
Banks must be over the moon with Upstart's ability to find creditworthy borrowers who would have slipped through the cracks. The company didn't just meet the expectations of Wall Street analysts who follow the company. It blew right past those expectations when it reported fourth-quarter results after the market closed on Tuesday.
2. It blasted past expectations
Upstart reported adjusted earnings during the last three months of 2021 that came in at $0.89 per share, which was $0.38 more than anticipated. On the top line, revenue that reached $305 million beat consensus estimates by $42 million.
Upstart didn't beat expectations because those expectations were particularly low, either. The average analyst following the company expected fourth-quarter revenue to triple compared to the prior-year period. Upstart did even better, with revenue that rocketed a whopping 252%.
The bottom line is expanding so fast that just 14 months after its initial public offering (IPO), Upstart is geared up to start returning profits to its shareholders. Along with fourth-quarter earnings, management announced a plan to buy back $400 million worth of its own stock.
3. The tip of the iceberg
Upstart is well established in the market for personal loans, but this space is tiny compared to the enormous market for automotive lending. There's more than $1 trillion in outstanding car-loan debt in the U.S., and more than $600 billion worth of new auto loans are created annually.
Last spring, Upstart acquired a provider of cloud-based automotive retail software, and this year the company's putting it to work. During the last three months of 2021, Upstart began applying the techniques that made it a champion of the personal loan space to auto lending. This year, the company will test the waters with $1.5 billion worth of auto loans financed from its own balance sheet.
Upstart's still trading way below the peak it reached last year, but it isn't exactly cheap. At the moment you can buy the stock for around 64 times forward earnings expectations. With the enormous market for auto loans in front of it, though, it still has a great chance to provide market-beating gains for years to come.
