Upstart Holdings (UPST 2.76%) stock moved 11% higher in November, according to data from S&P Global Market Intelligence. Its business is highly affected by interest rate trends, and the Federal Reserve paused rate increases and signaled that it felt the current policy was working in curtailing inflation without bringing about a recession. That led many experts to believe the Fed might even begin to cut rates soon.
Investors are down on Upstart stock
Upstart has been having a rough time since inflation started to balloon and the Fed began to raise rates. It runs a credit evaluation platform, and the loan industry has been hit hard, since higher rates mean fewer people can afford to take out loans. It also means there are going to be higher default rates. Since Upstart's entire premise rests on identifying borrowers who are less likely to default, it's not able to approve applications at the same degree as when interest rates are low.
In the 2023 third quarter, revenue declined 14% from last year, and net loss was $43 million, an improvement from $58 million last year. Loan volume decreased 34% from last year to $1.2 billion.
However, there were several positive signs. Contribution margin has been close to its highs, coming in at 64%, up from 54% last year. It's also expanding its partnerships, signing up new credit unions for personal loans and auto dealerships for its auto-loan product. And it finally unveiled its first home-loan product, a home equity line of credit (HELOC). This is its first foray into the largest loan segment of mortgages. Upstart sees a $1.8 trillion opportunity in mortgages, and that's using current data, which is from a suppressed housing market. The HELOC is live in four states and launching in four more.
Is it time to buy Upstart stock?
Upstart has been a volatile stock since it went public almost three years ago. It has captured market attention, and investors are on it quickly whenever there's news, both positive and negative. It had gained more than 400% this year but then tumbled on bad news. It's now up a more modest, but still high, 145%.
Upstart's model does seem to work in a low-interest-rate environment, and it's likely that over time, with more data points and improved machine learning, it will work better in high-rate environments. If you invest now, you're betting on a rebound, and at this point, Upstart stock is just for investors with a (very) high risk tolerance.
