Upstart Gears Up to Report Q4 Earnings: Buy, Sell or Hold the Stock?

Upstart Holdings UPST is slated to report fourth-quarter 2024 results on Feb. 11, after market close.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.The company expects revenues of approximately $185 million for the quarter. The Zacks Consensus Estimate is currently pegged at $180.1 million, suggesting an improvement of 28.3% year over year.The consensus mark for earnings is pegged at a loss of 5 cents per share, narrower than the year-ago quarter’s reported loss of 11 cents. The consensus mark for the bottom line has remained unchanged over the past 60 days.Image Source: Zacks Investment ResearchUPST’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 39.7%.Upstart Holdings, Inc. Price and EPS Surprise Upstart Holdings, Inc. price-eps-surprise | Upstart Holdings, Inc. QuoteEarnings Whispers for UpstartOur proven model does not conclusively predict an earnings beat for Upstart this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.Though UPST carries a Zacks Rank #3, it has an Earnings ESP of -20.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.Factors to Note Ahead of Upstart’s Q4 ResultsUpstart’s fourth-quarter performance is likely to have gained from its strategy to operate as a multiproduct company. Innovative product launches like the Upstart Macro Index and features like Parallel Timing Curve Calibration and Recognized Customer Personalization to promote improved data-driven decisions among lenders are likely to have favored the company’s performance.UPST’s expertise in offering unsecured loans, especially when traditional banks are cautious amid the ongoing macroeconomic uncertainties, is likely to have contributed to its customer base growth. The Federal Reserve’s two rate cuts in 2024 are likely to have benefited the company’s fourth-quarter performance.Upstart’s ongoing efforts to automate the unsecured loan process might have contributed positively to the to-be-reported quarter. It is also expected to have gained from multiple partnerships with banks and credit unions, including Fibre Federal Credit Union, AMOCO Federal Credit Union, Bank of Elk River and Texans Credit Union.Amid the ongoing macroeconomic headwinds, Upstart is cutting costs by reducing its workforce. This measure is likely to have aided UPST in counterbalancing the protracted high inflationary conditions that are reducing the volume of transactions on the Upstart platform.However, headwinds from the weakening lending market due to elevated consumer risk caused by multiple bank failures and the dislocation of capital markets might have affected Upstart’s revenues in the fourth quarter. The volatility in the macro environment, caused by global geopolitical tension, is also expected to have hurt UPST’s performance.Upstart’s Price Performance & ValuationUpstart shares have surged 100.4% over the past year, outperforming the Zacks Financial – Miscellaneous Services industry’s growth of 25.9% and The Financial Select Sector SPDR Fund XLF ETF’s gain of 32.1%.Compared with other traditional lenders, Upstart stock has underperformed SoFi Technologies SOFI but outperformed LendingClub LC. Shares of SoFi and LendingClub have risen 101.6% and 57%, respectively.One-Year Price Return PerformanceImage Source: Zacks Investment ResearchLet us now look at the value Upstart offers to its investors at current levels. UPST is currently trading at a premium with a forward 12-month price-to-sales (P/S) of 7.51X compared with the industry’s 2.93X, indicating a stretched valuation. Its competitors, SoFi Technologies and LendingClub, have forward 12-month P/S of 5.28X and 1.59X, respectively.Forward 12-Month P/S RatioImage Source: Zacks Investment ResearchInvestment Thesis for Upstart StockUpstart’s business model thrives in a low-interest-rate environment. By using AI to assess borrower creditworthiness, the company provides faster loan approvals, making it an attractive alternative to traditional lenders.The Federal Reserve’s two rate cuts in 2024 have already fueled a recovery for Upstart, reversing some of the damage from previous rate hikes that had cut its annual revenue run rate in half. With more cuts expected in 2025, borrowing costs should decline further, stimulating loan demand and revenue growth.The company has also made strides in diversifying its funding sources and securing institutional partnerships that reduce its dependency on holding loans on its balance sheet. Upstart's innovations in personal and auto loan segments, combined with its strategic investments in new loan products, hold promise for future growth.Conclusion: Hold Upstart Stock for NowUpstart Holdings’ AI-powered innovation, improving macro backdrop and expanding loan offerings position it well for future growth. However, its high valuation makes it vulnerable to short-term volatility. For now, holding the stock is the smartest approach. Currently, Upstart carries a Zacks Rank #3 (Hold).7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.3% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Financial Select Sector SPDR ETF (XLF): ETF Research Reports LendingClub Corporation (LC): Free Stock Analysis Report Upstart Holdings, Inc. (UPST): Free Stock Analysis Report SoFi Technologies, Inc. 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