The stock market is on a severe losing streak, having lost 19% of its value from its all-time high. The broader S&P 500 index has decreased 19% from its all-time highs, putting it within a whisker of being in a bear market. But the Nasdaq-100 index, which is skewed towards technology stocks, has already reached that level with a loss of 28.3% since November 2021.
Despite the fact that many investors are sweating bullets over the current market situation, history suggests that down markets always rebound, so this could be a wonderful time to invest. Here’s one fast-growing stock utilizing cutting-edge technology that is well worth considering because it is selling at an 88.9 percent discount to its all-time high despite being quite profitable.
Upstart is starting to transform the lending business
For decades, Fair Isaac’s FICO credit scoring system (FICO 4.41%) has been the industry standard for assessing consumer credit risk. It considers five factors, including a borrower’s payment history, the types of loans held, and current debt levels.
Those metrics, according to Upstart Holdings (UPST -13.34%), don’t give the whole picture of a person’s ability to pay back a loan. To produce a more precise credit score, the firm has developed an artificial intelligence algorithm that assesses 1,600 data points, which include where a borrower is currently working and his or her education level. The algorithm also reaches a conclusion quickly 74% of the time, which could save days or weeks in comparison to manually creating a credit assessment.
That’s a big victory for banks, one of which has completely ditched FICO scores in favor of this new-age technology. That brings up an interesting question: Upstart’s objective isn’t to create loans but rather to originate them on behalf of its bank partners in return for a fee. Typically, this implies that Upstart bears no credit risk at all, with the exception of recently, when it temporarily departed from this strategy.
The firm has been researching and developing a new automobile financing sector, and it had made loans to borrowers worth $252 million with its own cash by the end of 2021. That figure increased to $597 million at the end of Q1 of 2022, as the business struggled to sell many loans to its partners during the challenging credit conditions.
The Upstart team is confident that its problem will be overcome and that this issue will be temporary, as the company’s management anticipates $4.5 billion in new financing activity by 2021. The additional credit risk it took on in Q1 amounts to only 7% of all loans produced by its algorithm.
Upstart’s growth is soaring
From its modest origins as an unsecured personal loans business, Upstart has grown into a multi-billion dollar industry. The firm’s entry into the significantly larger auto loan market in 2021 opens up an addressable market that is almost six times larger.
The ideal approach to get the maximum number of automobile loans is to locate potential borrowers where they already spend their money — inside automobile dealerships. To promote its development, Upstart bought Prodigy, a car dealer sales software company. It has incorporated its algorithm into that platform to develop Upstart Auto Retail, which is a two-in-one lending and sales software that 525 dealerships have started using. That is a huge 224 percent increase over last year.
According to Upstart’s financials, which were recently updated, the firm has expanded its client base and achieved impressive growth in revenue. In Q1 2022, the company had a $310 million revenue figure, up 156% year over year.
But it gets even better for Upstart
Upstart has hinted that its gaze may extend even further into the lending market. In its most recent quarter’s news release, Upstart highlighted the $644 billion small company loan sector and the $4.5 trillion mortgage sector. The firm has not announced any intentions to enter these sectors, but by mentioning them, it provides a little insight into where Upstart is heading in its next phase of development.
Unfortunately, Upstart’s revenue forecast for 2022 was reduced after the firm’s growth projections for 2021 were revised down. Management had anticipated to produce $1.4 billion in sales, but that was lowered to $1.25 billion; nevertheless, it represents a 47% increase over last year’s figure of $849 million.
The stock price of Upstart has tumbled 88.9 percent from its peak, but it has soared 77% in the last two weeks, following its earnings release. Some investors still see potential in the firm, and it’s certainly still very cheap.