Here’s why upstart still has high growth potential

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upstart (UPST -3.06% ) was one of the most disruptive stocks to hit the market that year, rising more than 1,000% at times. However, there is reason to believe that the AI-based consumer credit specialist still has a potential of 10 dredgers.

This section of “The Five” is added on November 23, Fool contributors Connor Allen and Jason Hall discuss the disruptive potential and risks of Upstart.

Jason Hall: Connor, what do you have for us?

Connor Allen: Taylor, I have to say I like Coinbase as. I think they have a big first mover advantage there, especially with all the upcoming regulations. But for me, my stock, which I would pick 10x, would have to be Upstart. Upstart is a recommendation for many foolish ministries. They’re basically revising the way FICO credit ratings and loans are done. With their price dropping after their earnings, which went pretty well, their rating keeps looking better to me. For example, if you look at some of the forward projections of the price / earnings ratio, it really isn’t as bad as if you look at 40 to 50 times earnings if you zoom out a few years or even a couple of months. I think Upstart is doing pretty good at the valuation right now, especially with the growth they expect over the next few years and the new clients they are getting and all the big banks. Unless something big happens, I think there can be a lot of organic growth if Upstart keeps chugging and doing what it does. Of course, if a major bank decides to use its own algorithm similar to Upstart’s to lend it out, something could go wrong, especially if their system has failure rates higher than FICO’s, that’s another risk too. But I think current business and some organic growth in the future could definitely result in a 10x stock.

Jason Hall: I think the potential is there and it’s incredible to look at a company as much as the pure social good that it does. If there is one industry ready for this disruption, it is lending. Some of these lenders are thinking of auto loans, and subprime lenders in particular. I love what you do. I would like to highlight the risk factor of payment default. Until we have gone through a full credit cycle, we won’t know how good their credit quality is. Were not. You can play anything you want, you can simulate anything you want. But until you’ve gone through a full economic cycle with an economic downturn and people out of work, we just don’t know what their credit quality is like. This is a very real risk and it could take 3-5 years before we learn more about it. That’s the only thing I’ve been really careful about at Upstart, but I love what they do and I think Connor you’re right. It definitely has 10 excavators or more potential even if it is now.

This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – including one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.


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