When a stock suffers a sharp decline, it is reasonable to assume that the company has made execution errors resulting in poor financial performance. But over the past two years, many high-growth tech stocks have made astronomical gains and are now suffering from a subsequent “return to Earth” — doing nothing different from a trading standpoint.

Assets received (NASDAQ: UPST) is a particularly rare case because it is a profitable company with skyrocketing operational growth, yet its share price is down 76% since hitting an all-time high in October 2021.

Its business is doing so well that analysts at a major Wall Street bank believe its stock could gain 268% from today’s price. If you’re looking for bargains in this tough market, Upstart is definitely worth your attention.

Transform the lending business

First and foremost, Upstart is an innovator. He developed an artificial intelligence algorithm designed to assess the creditworthiness of potential borrowers in much more detail than the traditional FICO scoring system. But the company does not lend money itself; instead, it receives fees for using its technology to create loans for partner banks.

Its business model therefore carries much less credit risk, and it has paved the way for the company’s incredible growth since it is not subject to the same restrictions or regulations as a bank.

But after 33 years of using the FICO scoring system, which reliably rates things like a potential borrower’s payment history and existing debts, why would banks turn to the algorithm? artificial intelligence from Upstart? It’s simple: Upstart’s technology analyzes 1,600 data points on a candidate, and it does it fast enough to make an instant decision 67% of the time.

In the modern economy, taking into account alternative indicators such as a borrower’s education or work history can provide a more complete view of their ability to repay a loan. But until the advent of advanced technologies like artificial intelligence, there was no way to effectively evaluate all this data. But the evidence is clear: Upstart’s approach results in 75% fewer defaults, and at least one bank has dropped FICO scores entirely in favor of Upstart.

Rapid growth and an expanding market

Upstart first started offering unsecured loans, which is an $81 billion-a-year market. But in 2021, it expanded into the $672 billion auto finance business by acquiring auto dealership sales platform Prodigy.

The company leveraged Prodigy’s software to create Upstart Auto Retail, a two-in-one sales and loan origination platform now used by 291 dealerships across America (and growing at the rate of growth). ‘one per day). This expansion has boosted Upstart’s business significantly, with more than $800 million in revenue expected for the full year 2021 once the company officially reports results. This is 60% additional revenue compared to initial forecasts.

Data source: Upstart, Yahoo! Finance. CAGR = compound annual growth rate.

While Upstart’s revenue and earnings growth rates are impressive, it only scratches the surface of its opportunity in auto finance. And he hasn’t even begun to care about the gigantic $4.5 trillion a year mortgage market. As long as the company’s algorithm continues to deliver success for banks, this could be the next frontier.

Wall Street is impressed

In December 2021, the Wall Street banking giant CitiGroup (NYSE:C) upgraded Upstart stock to a buy and gave it a price target of $350, which is up 268% from today’s price. Citi analyst Peter Christiansen, noting the company’s expansion into other lending segments, believes the current drop in its share price represents a buying opportunity.

But Citi is not alone. A total of six analysts have a buy rating on Upstart stock, five have a hold and only one has a sell rating. Their average price target stands at $266, which is 180% higher than the current stock price, suggesting that there is broad bullish sentiment for Upstart on Wall Street.

Based on the company’s estimated $2.33 earnings per share for 2022, its shares trade at a forward price-to-earnings multiple of 40. That’s more expensive than tech-focused stocks. Nasdaq 100which trades at a multiple of 23, but Upstart commands a premium for its astronomical growth rates.

It’s these growth rates that could make Upstart a boon for long-term investors when they look back a few years from now.