Upstart stock price is showing signs of bottoming

Upstart (UPST) stock has continued to struggle this year, benefiting investors who have shorted the company. It has dropped by more than 34% this year while the Nasdaq 100 and S&P 500 indices have risen to a record high. 

Upstart is one of the most shorted companies in Wall Street with a short interest of almost 33%. These short sellers have also benefited as the stock has plunged by more than 63% from its highest point in August 2023.

Turnaround is continuing

Upstart is one of the top fintech companies in the United States. It provides a platform where users can take loans online in a relatively easy way. 

Upstart does not provide these loans itself. Instead, it uses advanced artificial intelligence technologies to help banks and credit unions offer loans to customers. These customers benefit by getting lower interest loans. 

Upstart’s business has done relatively well in the past few years as the number of customers has jumped to over 3 million. It has partnerships with over 100 banks and has handled over $38 billion in originations. 

However, the stock has dropped sharply because of the ongoing high-interest rate environment. Rates have soared from around zero during the Covid-19 pandemic to a multi-decade high of 5.50%. 

The most recent financial results showed that the company’s business is doing well. Its revenue rose by 24% to $127.8 million. It also narrowed its net loss from over $129 million to $64 million. 

This performance happened as the number of loans offered in its platform rose from 84k in Q1’23 to 119k. These loans dropped from 129k in the fourth quarter. 

The company has been implementing a turnaround strategy in a bid to achieve profitable growth. Like other companies, it has laid off hundreds of people in the past few months. It laid off 365 workers and has about 1,300 workers today. 

Most recently, Upstart decided to sell consumer loans worth $1.2 billion to Castlelake a company that focuses on private credit. 

Upstart stock could bounce back

Analysts believe that Upstart’s business will remain under pressure but continue recovering later this year. The estimate is that its revenue dropped by 8.3% in the second quarter to $124.54 million. 

They also expect that its revenue will rise slightly in Q3 to $135 million and that its annual figure will be $537 million followed by $700 million in 2025. Upstart is also expected to generate a profit of 11 cents per share in 2025. 

The company could benefit if the Federal Reserve starts cutting interest rates later this year since US inflation is still moderating. Lower interest rates could lead to more demand for consumer loans.

According to Yahoo Finance, the average analyst target for the Upstart stock price is $26.92, higher than the current $18.90. In a recent note, an analyst at Redburn Atlantic said:

“With macro headwinds potentially peaking and Upstart making progress on its products, innovation, funding and balance sheet, we expect a more stable environment ahead. Management’s willingness to guide to 2H24 revenues adds confidence to the thesis that visibility is, at the very least, improving.”

On the other hand, analysts at BTIG warned that the Upstart share price could crash to $14 because of strong competition and lack of scale.

Upstart stock price analysis

UPST chart by TradingView

The daily chart shows that the UPST share price bottomed at $21.28, where it has failed to move below since November 2023. That is a sign that sellers are afraid placing a short trade below that level.

It has formed a double-bottom pattern whose neckline is at $26.6. In most cases, this pattern is one of the most bullish signs in the market. It has moved above the 50-day and 100-day Exponential Moving Averages (EMA).

The accumulation and distribution indicator has also pointed upwards. Therefore, the stock could have a bullish breakout ahead of its earnings on August 6th.