Shares of Upstart Holdings (UPST 2.76%) stock fell 22% in January, according to data provided by S&P Global Market Intelligence. There wasn't any significant news, but investors are pessimistic about its chances to improve while interest rates are still in flux

Its performance isn't pretty

Upstart had been reporting explosive growth and high profitability prior to inflation and the ensuing high interest rates, but that fell off a cliff when demand for loans fell and higher default rates spooked lenders. Upstart operates an artificial intelligence (AI)-powered credit evaluation platform, and it stands out from traditional models because it says its technology can identify credit risk more accurately, resulting in more loans without increased risk. However, in this kind of economic environment, its algorithms can't identify as many candidates for loans.

In the 2023 third quarter, revenue fell 14% from last year, which itself was a steep year-over-year decline. Loan volume decreased 34%, with a 9.5% conversion rate. Net loss improved from $56.2 million last year to $40.3 million this year. It's guiding for a further revenue decline in the fourth quarter, with net loss moderately improved from last year.

On the bright side, the company is still launching new products and entering new markets, positioning itself to bounce back when the time is right. It recently introduced its first home product in four states, and it's still adding credit partners for personal loans and auto loans to its platform.

But its stock has soared

Part of the problem with the stock is that it's taken off despite these problems. This is a volatile stock. It might be hype, confidence in the future, the appeal of a down-and-out stock that could rebound, or other factors, but whatever it is, Upstart stock gained 209% in 2023. It's not surprising that it hasn't been able to sustain that kind of rise. At the current price, it trades at a price-to-sales ratio of 5.2, which isn't exactly cheap for a company that has reported sales declines for five consecutive quarters, with another one expected.

The situation doesn't look very positive right now, and the stock isn't even cheap. That doesn't mean Upstart doesn't have any long-term potential; it's likely to get back to growth when economic conditions improve. However, there's plenty of uncertainty right now, and investors may want to look for greener pastures in the near term. There's always time to reevaluate when the situation changes.