Shares of AI-powered lending platform Upstart (UPST, Financial) experienced a significant decline, dropping 13.49% in trading. This downward movement stems from an analyst downgrade by J.P. Morgan due to concerns about growth and valuation.
J.P. Morgan analyst Reginald Smith downgraded Upstart from Neutral to Underweight (Sell). The analyst expressed concerns that the anticipated improvement in the third-party funding environment by 2025 might be overestimated. Currently, Upstart shares are trading at 9 times forward sales, which raises valuation concerns.
Examining Upstart's (UPST, Financial) financial data, the current stock price is $68.16, reflecting a market capitalization of approximately $6.22 billion. Despite its AI-driven approach to lending, Upstart faces significant challenges, notably with its financial metrics. The company has a Price-to-Book (P/B) ratio of 10.42 and is significantly overvalued based on its GF Value. According to GF Value, the stock is projected to be around $27.18, suggesting it is trading well above its intrinsic value.
The company's financial health has several warning signs: a decline in revenue per share over the past five years, issuance of new debt totaling USD 585.684 million over the past three years, and significant insider selling activity. Over the past three months, 551,816 shares were sold across 35 transactions, with no insider buying.
On a positive note, the Beneish M-Score for Upstart is -2.41, indicating that it is unlikely to be a manipulator. However, other financial performance metrics, such as a net margin of -30.45% and a return on equity (ROE) of -27.32%, highlight the company's challenging profitability and operational efficiency.
Investors should be cautious given the volatility and the company's financial challenges. The stock has shown a 67.08% increase YTD but remains far from its intrinsic value based on the GF Value estimate.
