Should you buy or sell Upstart shares after BofA’s double-downgrade?

on Oct 18, 2021
  • Upstart Holdings shares plunged 4% on Monday after BofA downgraded to sell from buy.
  • Analyst Nat Schindler thinks the recent spike in UPST stock has priced in the expected short-term growth.
  • The analyst issued a price target of $300, implying a discount of 20%.

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On Monday, Upstart Holdings Inc. (NASDAQ:UPST) shares declined by 4% after receiving a double-downgrade from BofA. Analyst Nat Schindler downgraded UPST shares to sell from outperform. The analyst said the recent rally in the stock has priced in expected short-term growth. 

Upstart shares are up more than 750% this year and over $1,170 since going public in December last year. Schindler thinks the surge in the stock price leaves little room for more upward movement.

In a note to investors, the analyst wrote:

Upstart’s differentiated ability to price risk, we think the current market valuation at 24x our 23E sales leaves little room for upside.

On the contrary, the consensus Street rating remains largely bullish with an overweight (buy) rating, short-term or otherwise.

Is it too late to bet on UPST’s growth?

From a valuation perspective, Upstart shares trade at steep trailing 12-month and forward P/E ratios of 599.08 and 266.61, respectively. As a result, short-term value investors may opt for alternatives in the market.

On the other hand, with analysts predicting an EPS growth of 478.30% this year before extending further by 29.50% next year, growth investors could be looking to pounce on the stock.

Therefore, Upstart could still be a good stock to buy going to the tail-end of the year.

Source – TradingView

Technically, Upstart shares seem to be trading within an ascending channel formation in the intraday chart. As a result, the stock has spiked to overbought conditions, creating a perfect opportunity for a pullback.

Therefore, investors could target short-term pullbacks at about $336.97, or lower at $284.10. On the other hand, if the rally continues, the stock could find resistance at $402.57, or higher at $449.62.

It could be time to short UPST

In summary, given Upstart’s year-to-date gain of more than 750% and its steep valuation multiples, the stock could pull back significantly as more investors decide to take profits.

Therefore, although the company offers exciting long-term growth prospects, it could be time to sell before adding back to your portfolio.


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