What’s Next For UPST Stock?

Upstart’s Stellar Q4 Earnings Exceed Expectations, Fueling Stock Surge

Upstart (NASDAQ: UPST), a leader in AI-driven lending solutions, delivered a knockout performance in its Q4 2024 earnings report, surpassing Wall Street expectations by a significant margin. The company posted revenue of $219 million, a 56% year-over-year increase, and reported earnings of $0.26 per share—a stark contrast to the expected loss of $0.04 per share. This impressive outcome not only reflected the company’s strong operational execution but also underscored the growing momentum in its AI-powered lending platform. Investors took notice, sending UPST stock soaring by over 20% in after-hours trading following the announcement. Meanwhile, Crocs (CROX) is set to release its earnings soon, raising questions about whether its stock will experience a similar post-earnings rally.

Driving Growth: Loan Origination and Partnerships Propel Upstart Forward

The key driver behind Upstart’s success in Q4 was its robust loan origination growth. The company facilitated the sale of 246,000 loans worth $2.1 billion, marking a 68% increase compared to the same quarter in 2023. This growth was supported by newly formed partnerships aimed at funding consumer loans, which have played a pivotal role in expanding Upstart’s reach and revenue. Additionally, the loan conversion rate improved significantly, rising to 19.3% from 11.6% in Q4 2023, further highlighting the effectiveness of its AI-driven underwriting model. As Upstart continues to scale its operations, these partnerships and technological advancements will remain critical to sustaining its growth trajectory.

Financial Performance: Rising Margins and Strong Future Outlook

Upstart’s financial performance in Q4 was nothing short of remarkable. The company’s adjusted EBITDA margin surged to 17.7%, a stark improvement from 0.4% in the same quarter of the previous year. This significant increase in profitability, coupled with higher revenue, enabled Upstart to achieve earnings of $0.26 per share, compared to a loss of $0.11 per share in Q4 2023. Looking ahead, Upstart provided a strong forward guidance, projecting Q1 revenue of approximately $200 million and full-year 2025 revenue of $1 billion—substantially above the consensus estimate of $0.8 billion. These projections suggest that the company is well-positioned to maintain its upward momentum in the coming quarters.

UPST Stock: A Tale of Volatility and High Returns

While Upstart’s recent performance has been stellar, its stock has historically been a rollercoaster ride for investors. Over the past few years, UPST stock has experienced significant volatility, with returns swinging wildly. In 2021, the stock delivered a return of 271%, only to plummet by 91% in 2022. It rebounded with a 209% gain in 2023 and is up 51% so far in 2024. This unpredictability underscores the risks associated with investing in high-growth, innovative companies like Upstart. Despite its recent gains, the stock’s performance relative to the broader market remains a topic of interest, especially as macroeconomic factors like interest rate fluctuations and trade tensions continue to shape the investment landscape.

A Steadier Alternative: The Trefis High-Quality Portfolio

For investors seeking steadier growth with lower volatility, the Trefis High-Quality Portfolio offers an attractive alternative. Comprising 30 carefully selected stocks, this portfolio has consistently outperformed the S&P 500 over the past four years while maintaining significantly lower volatility. The key to its success lies in its focus on stocks that deliver higher returns with lower risk, making it a more stable choice for investors who prefer less turbulence in their portfolios. With a return of over 91% since its inception, the High-Quality Portfolio has proven to be a reliable option for those looking to balance growth and stability in their investments.

Investment Considerations: Valuation, Volatility, and Future Prospects

At its current price of $67, UPST stock trades at 9.5 times trailing revenue, slightly above its four-year average of 8.4 times. While this valuation multiple may be justified given the company’s recent strong performance, investors should remain cautious. If the stock rises to $80, as suggested by after-hours trading, its price-to-sales ratio would climb to around 11.3 times, reflecting overly optimistic expectations. Given this, investors may find better value by waiting for a potential price dip before entering at $80. As the macroeconomic environment remains uncertain, Upstart’s ability to sustain its growth and outperform the S&P 500 over the next year will depend heavily on its ability to navigate challenges similar to those it faced in 2022. For now, investors are encouraged to weigh the potential rewards against the risks and consider diversification strategies to mitigate volatility.