As a business, Upstart Holdings (UPST 2.21%) is striving to revolutionize the world of consumer credit. As a stock, Upstart is striving to reverse a price plunge that has accelerated in 2022. The stock hit an all-time pricing high above $401 per share in October 2021, but it now trades in the $25 range -- representing a drop of roughly 94%. Much of that drop came in 2022 with the price down 83% since the start of the year.

Has this beaten-down fintech stock fallen to pricing levels that investors should pounce on? Or are the wheels on the company's growth story falling off for good?

Let's take a closer look at the bull and bear cases for Upstart, as well as what comes next for this formerly high-flying fintech stock.

Bull case: Upstart's cyclical rebound potential is underappreciated

Upstart uses a software system powered by artificial intelligence (AI) to assess a wider range of criteria when determining whether a prospective loan applicant is likely to pay back a loan. A more thorough analysis of credit means the company could widen the pool of qualifying borrowers, which would allow more loans to be issued and generate revenue for itself and its partner lenders. Upstart is trying to move banks, credit unions, car dealerships, and other lenders away from reliance on Fair Isaac's FICO score when assessing loan eligibility. 

Upstart's business model revolves around connecting lenders with borrowers and then collecting a fee for the service. It had been enjoying rapidly scaling adoption until recently falling on harder times. The fintech company's revenue still grew 18% year over year in the second quarter, but its sales of $228 million in the period came in well below management's previous guidance for revenue between $295 million and $305 million. Investors should note that this performance was being compared to the Q2 2021 period that saw the business post 1,018% year-over-year sales growth.

Upstart's business seems to be highly impacted by the broader macroeconomic backdrop, and unfavorable developments on that front are leading to rapidly decelerating growth. That's probably bad news when it comes to business performance in the near term, but it sets the stage for a potentially massive rebound when economic conditions become more favorable. 

With the stock-price drop, Upstart's market cap has been pushed down to roughly $2 billion, and moves to pursue substantial stock buybacks suggest that leadership believes the stock is significantly undervalued at current prices. The company has a solid balance sheet, and it's not burning cash at an alarming rate, despite recent sales and earnings performance falling well short of earlier expectations.

Upstart is now valued at roughly 2.3 times this year's expected sales and 36 times expected non-GAAP (adjusted) earnings. For risk-tolerant investors who see the potential for the business to make it through challenging conditions and enjoy a cyclical recovery, the beaten-down stock could have huge upside potential at current prices. 

Bear case: Hard times could be here for a while

Upstart is struggling in today's challenging macroeconomic environment. High levels of inflation, declining gross domestic product, and rapid interest rate hikes are combining to create a difficult backdrop for many fintech companies. Upstart has been particularly hard hit, and it's clear that many shareholders have lost confidence in the company's business model. 

While second-quarter sales were still up compared to Q2 2021 on a year-over-year basis, they were actually down 26% compared to this year's first quarter. The company's Q2 2022 net loss of $29.9 million was also far worse than the previous midpoint loss estimate from management of $2 million. 

Even worse, management expects sales to decline again on a quarter-over-quarter basis in Q3. The company's most recent guidance calls for sales of $170 million in the third quarter, a roughly 25% decline compared to last quarter. Meanwhile, Upstart is guiding for an adjusted loss of $9 million in the period. 

With the potential risk of a prolonged recession looming, it's also possible that many of the loans that Upstart previously assessed as healthy propositions will now come under pressure. If people lose employment or otherwise face economic hardship, that could lead to increased levels of defaults that both hurt near-term financial performance and cause existing or potential partners to shy away from the use of the company's services. 

Early indicators suggest that the company's business model may not function well amid a weaker economy and rising interest rates. The less-favorable macroeconomic backdrop and collapsed stock price could make it more difficult to raise funds or support operations through stock-based compensation without substantial dilution -- and that could continue to destroy shareholder value.  

Should you buy Upstart stock today?

Despite massive sell-offs, it wouldn't be fair to now call Upstart a low-risk stock. The company is facing some major pressures, and it remains to be seen whether it can successfully emerge from these headwinds and get its growth story back on track. With its business trajectory uncertain at the moment, Upstart stock stands out as a high-risk, high-reward play even after dramatic pullbacks for its valuation. The company's share price could soar if business performance improves, but there's also a real possibility that shares could fall significantly below current levels in this current uncertain macroeconomic environment.