Insights

Why Upstart Stock Jumped 9% Today

What happened

Shares of lending software outfit Upstart (NASDAQ: UPST) rallied 9.1% today as of 2:35 p.m. ET. Don’t let that jump fool you, though. It was another rough week for Upstart and fintech stocks in general after the U.S. Federal Reserve increased interest rates 0.75% in an attempt to beat back inflation. After today’s rebound, the stock is down about 6% over the last five days.

As a reminder, higher interest rates tend to lower the present value of risk assets like stocks. That explains the recent market turmoil as it balances higher Fed rates against specific company growth prospects. 

Image source: Getty Images.

So what

Upstart in particular is grappling with issues as the economy heads into a slowdown — maybe even a recession. This fintech is young and has yet to contend with a real downturn in the credit markets. Shares are down some 77% so far in 2022 as a result, though the stock was highly inflated at the end of 2022 before the Fed started its monetary tightening campaign in earnest.  

In May, Upstart announced its first-quarter earnings and downgraded full-year guidance as it adjusts to economic conditions. Of particular concern to some investors were the nearly $600 million in loans that showed up on the balance sheet during Q1 (compared to $252 million at the end of 2021). Management said it was carrying these loans to “test” new metrics in its software and says it has sold these loans subsequent to the last quarterly update.

Now what

The concern here is that Upstart could get hit with credit losses during an economic downturn if it carries excess loans on its balance sheet. Some investors also worry that the excess loan balance is some sort of indicator that the business model has changed (Upstart the financial services company versus its original focus on lending software). The jury is still out on this topic, so management will need to prove it’s still primarily a fintech and not a lender during its next quarterly update (likely in early August). 

At any rate, the extreme volatility is a function of business-specific risks heightened by Federal Reserve actions and the uncertainty aggressive interest rate hikes could bring to the credit markets. It’s no surprise Upstart’s stock price has adjusted accordingly. Expect shares to remain highly volatile, even though they now trade for 19 times expected current-year earnings.

Nicholas Rossolillo has positions in Upstart Holdings, Inc. His clients may have positions in the stocks mentioned. The Motley Fool has positions in and recommends Upstart Holdings, Inc. The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here To Get Started
FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here For More Info