Rising action: buy, sell or hold in 2022?

Holdings reached (NASDAQ: UPST) caused a stir in 2021, entering markets in December 2020 with a moderate start before climbing over 750% in October 2021. Excitement cooled, but fintech stock still gained around 280% for the year. Management’s expectations for 2022 are also dampening some enthusiasm. What should investors do this year?

To buy?

There are many reasons to love Upstart. It has real disruptive potential in its artificial intelligence-based credit scoring platform, an alternative to the traditional FICO scoring model that groups people into boxes and denies credit to millions of potentially trustworthy borrowers. . Upstart challenges this by analyzing loan applicant information across thousands of data points that assess their personal creditworthiness. It uses many more variables than the standard scoring system, such as work history and education, which leads to more approvals while more accurately quantifying the risk to the lender.

The company says 80% of Americans have never defaulted on a loan, but less than half have access to the best interest rates. Obtaining loans to these “missing millions” provides more equity in the market and more business for the banks.

The history of Upstart makes this a reality. The company claims that 67% of loans are approved instantly and the total approval rates are higher than with the traditional rating system. More and more banking partners are using the Upsart platform to achieve these benefits. And as more partners arrive and more funds are loaned, more data is entered into the model for greater accuracy, resulting in a flywheel effect and more business all around. .

Third-quarter revenue increased 250% from a year ago to $ 228 million, which is pretty fantastic, but was a huge slowdown from the increase of over 1,000. % year over year in second quarter. This contributed to the decline in inventories. But the opportunity is still wide open. Management sees a potential market of $ 81 billion in its core personal lending business, and an addressable market of $ 672 billion in its new auto lending business. Finally, he has a $ 4.5 trillion mortgage opportunity, a market he plans to enter in 2022.

To sell?

With such a bright future ahead of us, what would be the reasons to sell? Not too. Even though it faces competition, Upstart is making gains in a huge potential market. The main risk is valuation, which has already declined.

These days, Upstart shares are trading around 157 times 12-month earnings, a huge drop from mid-2021, but still expensive. Management expects a 200% year-over-year sales increase in the fourth quarter, further decelerating growth from previous quarters. It’s still high growth territory, and if you pull your money back to find a faster growing stock, you could end up empty.

One of the reasons to sell would be if you are risk averse and the commute gives you an upset stomach. The stock price chart is a roller coaster ride, and investors need to be prepared to handle the ups and downs of this growth stock.

UPST data by YCharts

Hold?

If you are already an Upstart shareholder, hang in there. If you bought early and your winnings are evaporating now, stick with it; all stocks go through better and worse times, and high growth stocks tend to be more volatile than others. That’s their nature, and with the risk (sometimes) comes the reward.

If you have bought more recently, you might have a loss if you sell. You just need to put it away for a while and wait for the stock to increase over time. The huge opportunity, disruptive business and profitability make this stock a keeper.