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Why Shares of Upstart Fell Today

Why Shares of Upstart Fell Today
Written by Publishing Team

What happened

shares upstart holding (NASDAQ: UPST), the lender that uses artificial intelligence (AI) to make loan decisions, is down nearly 13.4% today after an analyst cut its target price for the stock.

so what

Wedbush analyst David Chiaverini maintained his neutral rating on Upstart, but slashed his price target from $160 to $110. The stock is currently trading at $92.60.

In his research note, Chiaverini wrote: “We believe UPST’s valuation is appropriately reflected in the current relative valuation. Despite the stock’s decline over the past few months, valuation metrics include [enterprise value to sales] And price/sales is still well above peer levels.”

Draw a red hand squiggly line in a downtrend.

Image source: Getty Images.

He added, “We believe the premium assessment is warranted in light of the company’s high growth, but it is difficult to justify the premium increase until we see that the recent rise in delinquencies is temporary.”

The indication of a rise in delinquencies is certainly surprising at the moment because most major banks have been reporting very strong loan quality in their credit card portfolios in their recent earnings calls. If this turns out to be a long-term trend, I think it would be very bad for Upstart, who basically said they wanted to replace Isaac Company Exhibition (FICO) credit rating system with its credit underwriting forms.

What now

This is the first time I’ve heard of an increase in delinquencies, so I’ll need to investigate further and see what’s being said in an upcoming earnings report before making a decision.

But again, if this trend in rising delinquencies is correct, it will not be good for the stock. Upstart has claimed that AI credit underwriting models can better assess a borrower’s true credit quality, enabling them to effectively approve and underwrite loans for borrowers not normally served by a bank or credit union.

While the Upstart rating is getting more attractive, I definitely wouldn’t buy this stock now with the credit question up in the air.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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