Upstart (UPST): Valuation Check as Cash Burn Concerns and High Short Interest Shape Investor Sentiment

Upstart Holdings (UPST) is back in focus as investors weigh stubborn worries about cash burn and a short runway against still elevated short interest, a mix that can amplify swings in the stock.

See our latest analysis for Upstart Holdings.

Despite lingering worries about cash burn and dilution, the stock has shown a 21.15% one month share price return. However, the year to date share price return and one year total shareholder return remain firmly negative, suggesting recent momentum is more of a short term sentiment swing than a confirmed long term recovery.

If you are weighing whether this rebound has legs, it can help to compare it with what is happening across other high growth tech and AI names using high growth tech and AI stocks.

With revenue and earnings rebounding but long term returns still deeply negative, investors face a familiar question: is Upstart finally trading at a discount to its AI lending potential, or is the market already pricing in future growth?

Most Popular Narrative Narrative: 15.3% Undervalued

With Upstart Holdings last closing at $46.91 against a narrative fair value of about $55.38, the gap points to a meaningful upside case built on future execution.

The implementation of Model 19, featuring the Payment Transition Model (PTM), has improved underwriting accuracy, which is likely to enhance loan approval rates and reduce default risks, positively impacting revenue and net margins. Upstart's HELOC product growth, driven by conversion improvements, cross-selling, and state expansion, positions it well for future revenue growth and margins with the potential to leverage its strong relationships with banks and credit unions for cost effective funding.

Read the complete narrative.

Want to see why this narrative expects profits to inflect sharply higher, and growth to accelerate while margins expand at the same time? The underlying model quietly bakes in years of compounding revenue, rising profitability, and a premium earnings multiple that many lenders never achieve. Curious which specific assumptions make that upside possible, and how sensitive the story is to even small changes in those inputs? Read on to unpack the full playbook behind this valuation.

Result: Fair Value of $55.38 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, this upside hinges on delinquency trends stabilizing and funding markets staying open, with any renewed credit stress quickly challenging the bullish thesis.

Find out about the key risks to this Upstart Holdings narrative.

Another Angle on Value

While the narrative fair value suggests upside, the current price to earnings ratio near 141.7 times towers over both the Consumer Finance industry at about 9.7 times and an estimated fair ratio of 42.3 times. This gap points to meaningful valuation risk if expectations slip.

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Upstart Holdings Narrative

If you see the outlook differently or want to stress test your own assumptions directly in the model, you can build a custom view in minutes: Do it your way.

A great starting point for your Upstart Holdings research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

Looking for more investment ideas?

If you stop at Upstart, you could miss other powerful setups, so take a few minutes now to scan targeted ideas before the market moves on.

• Capitalize on potential market mispricing by screening for companies trading below their intrinsic value through these 909 undervalued stocks based on cash flows.
• Ride structural growth in automation and machine learning by targeting innovators shaping tomorrow's tech landscape using these 25 AI penny stocks.
• Strengthen your income stream with reliable cash returns by focusing on proven payers via these 13 dividend stocks with yields > 3%.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com