2022 has been another rough year for growth stocks so far, and Upstart Holdings (UPST -1.25%) is no exception. After skyrocketing from sub-$100 a share to nearly $400 a share at one point in 2021, Upstart is now down over 80% from all-time highs -- and down nearly 50% so far this year. Ouch.
Some early investors might be wondering if it's time to bail on this once-high-flying do-no-wrong fintech company. It's important to remember that all future industry leaders undergo periods of extreme sell-offs. While risks have mounted as of late (higher interest rates, worry over an economic slowdown, maybe even a recession), Upstart still has a lot of long-term promise.
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What Upstart says to expect in 2022
There's a lot riding on Upstart's upcoming earnings report on May 9. Management said a few months ago to expect year-over-year revenue growth of 65% in Q1 2022, and net income growth of at least 80%. Full-year 2022 revenue is also expected to be up about 65% compared to 2021 as the company expands its auto lending software to banks, credit unions, and other lenders.
With such lofty expectations, why would the stock take such a severe tumble? Since Upstart's last earnings update, the Federal Reserve has gotten aggressive in its fight against inflation. Fed Chair Jerome Powell said last week a 0.5% hike in the central bank's benchmark interest rate was possible in May. Higher rates not only lower the present value of stocks, but the Fed's posturing has raised fears among some analysts that a recession could be on the way in the next year or so.
If that happens, Upstart's growth trajectory could come under pressure. After all, consumer lending is a cyclical business, and a recession could reduce banking and lending activity on the company's platform.
Near-term risks but huge long-term potential
After crashing from absurd levels of optimism last year, Upstart looks like an attractive buy to me right now. Shares trade for just 4.3 times enterprise value to expected full-year 2022 sales as of this writing, and 24 times expected one-year forward earnings.
Granted, if you think Upstart's lending software is tapped out, this is no cheap stock. But the company expects to greatly increase the activity on its personal and auto loan products, and has other areas of the lending industry in its crosshairs, too (perhaps mortgages and small business loans). Thus far, Upstart has been a fantastic growth story. I believe its run will continue for years to come, and thus think the fintech stock is a top buy right now.
