What happened

Shares of credit lending platform Upstart Holdings (UPST 4.61%) fell another 16% in November, according to data provided by S&P Global Market Intelligence. Upstart's third-quarter earnings came in below expectations, which were already a huge drop from the previous performance.

So what

November was an extension of Upstart's magnificent downfall from market darling to sell-off stock. After wowing investors with outrageous growth in 2021 and what looked like superior technology, it's fallen flat in the face of economic volatility.

That worsened in the third quarter as merely decelerating growth turned into a 31% year-over-year sales decline and a net loss. From a positive perspective, the reaction is that the stock had already plummeted so much that the added plunge was fairly mild.

There were two main problems in the third quarter. One was facing tough year-over-year comps as sales increased 250% last year. Looking at the two-year stack, it still comes out ahead.

The more serious issue is that Upstart's technology may not be superior in a down economy, seeding doubt about whether it's superior at all or whether it's worthwhile if it doesn't always provide a better outcome. Upstart has released research illustrating that it still produces better results than traditional models, even in this economy.

However, client partners aren't necessarily sold on that and haven't been originating as many loans. In that sense, the even bigger issue is gaining partner confidence. And that may be only a matter of time as it builds up its algorithms with more and more data points that should further improve the accuracy of its credit evaluation.

We can see this because, even as its revenue and earnings fall, Fair Isaac -- which produces the standard credit assessment service -- has posted solid results in this period. Lenders are turning to what it feels is a more reliable model when interest rates and potential defaults are rising.

Now what

Management expects revenue to decrease 56% at the midpoint in the fourth quarter, with an $87 million loss -- even worse than the third-quarter performance. At the very least, outlining poor performance should make it easier to come in line or beat guidance, but it could be a real disaster if it doesn't.

Upstart stock is down 88% this year, and it certainly looks cheap, trading at 18 times trailing-12-month earnings. But compare that to a stock like American Express, which is a safe stock posting robust growth and trades at 15 times trailing-12-month earnings, and it doesn't look like such a bargain.

If Upstart's growth theory is intact, this could be the steal of the century. But there's so much risk right now, and the near-term outlook is not particularly inspiring. That means, at least for the short term, investors should probably wait this stock out.