What happened
Shares of artificial intelligence-based lending platform Upstart Holdings (UPST -0.78%) dropped 31% in April, according to data provided by S&P Global Market Intelligence. The share price continued its descent as the market continued to show negativity toward tech stocks, and investors have been reevaluating the stock's elevated valuation.
Image source: Getty Images.
So what
Upstart stock has had a wild ride since going public just over a year ago. Investors caught on to its growth potential as it was posting triple-digit year-over-year sales growth, and in one quarter, quadruple-digit growth.
As growth levels normalized and the stock became extremely expensive, the price began to drop, and it hasn't stopped. It's now 70% off of its high last October, but it's still demonstrating impressive growth.
Sales increased 264% year over year in 2021 to $849 million, and net income increased more than 2,000% to $135 million.
But more exciting than past growth are future opportunities. Upstart is getting into car loans, which represent a $727 billion opportunity, more than seven times its personal lending business. It's also planning to enter mortgages in 2023, and has further plans for other products down the line.
In the meantime, it's expanding its business through more partnerships. Yesterday it announced a deal with Salesforce, integrating its artificial intelligence model into Salesforce's platform to make loan initiation simpler and more flexible. On the heels of that deal, today it announced that another credit union, Firstmark Credit Union in Texas, has chosen to work with Upstart. More banks are signing on as they see how Upstart can help them save and make more money.
Now what
At its new, lower price, Upstart stock now trades at a price-to-earnings ratio of 65. That still looks expensive, but less so in the face of its growth projections. Management expects revenue to increase 57% over the prior year in 2022 to $1.4 billion, and Wall Street expects a further 36% increase in 2023.
It's rare to see a company demonstrating such high growth and already posting profits. Upstart has massive potential, and although it might have been hard to justify buying shares at its peak price, it looks like a compelling purchase at the lower price.
It may already be making a turnaround, and the stock price is up 16% since the beginning of the month. Now might be a great time to buy.
