Up 200% in 6 Months, Is This Supercharged Stock Still a Buy?

Thanks to financial performance that appears to be stabilizing, shares of Upstart (NASDAQ: UPST) are on the upswing. In the past six months, they have soared 200% (as of Nov. 22), trouncing the 13% total return of the S&P 500 index during the same period.

Is it time to buy this supercharged fintech stock now that it's got some serious momentum on its side?

Back to growth

Upstart shares are surging thanks to two straight quarterly financial updates that were well received by the market. During the latest period (the third quarter of 2024, ended Sept. 30), the company reported revenue of $162 million, which was up 20% year over year. And Upstart registered a net loss per share of $0.07. Both the top- and bottom-line figures came in better than Wall Street analysts were hoping, which might explain why the stock surged 46% the day immediately after the update was made public.

"We continue to strengthen Upstart's position as the fintech leader in artificial intelligence," CEO Dave Girouard said in the press release. "Even without a significant boost from the macroeconomy, we're back in growth mode."

Upstart's situation is improving. But a more critical investor will point to the very easy comparisons the business is currently going up against. It's not difficult for sales to grow meaningfully this quarter when they fell 14% in the year-ago period. On a positive note, perhaps Upstart's worst days are behind it.

Negative traits

Upstart might be winning over investors in recent months due to improving fundamentals. However, there are strong reasons that investors should proceed with caution.

The first is simple: Upstart is not a profitable business.

Through the first nine months of 2024, the company reported a total net loss of $126 million. The bright spot is that the $7 million net loss in the latest quarter was a marked improvement from the $40 million net loss in Q3 2023. Maybe this encouraging trend will continue in the quarters ahead.

Companies that regularly generate positive net income are safer to own than those that do not. They have proven that the business model is sustainable, and they can avoid raising capital at inopportune times.

Another unfavorable characteristic with Upstart is that its business is extremely sensitive to macroeconomic forces. Upstart thrived in 2020 and 2021, registering tremendous revenue and loan volume growth. But things took a major turn for the worse after that robust time. Upstart's Q3 2024 revenue was 29% below the total from the same period in 2021, so it has a lot of catching up to do.

Of course, all companies are influenced by the state of the economy. But the ideal situation is to buy and hold companies that aren't too exposed to these kinds of uncontrollable factors, instead putting up solid financial results no matter what the macro backdrop looks like.

Upstart's valuation

As of this writing, shares of Upstart trade 81% off their peak, a high-water mark that was established in October 2021. That occurred in the midst of a raging bull market. It's hard to know if Upstart will ever get back to that point, as it would require a huge 427% gain from today's price.

Thanks to the stock's massive run-up in the past six months, the valuation is not as compelling as it once was. Investors can scoop up shares by paying a price-to-sales ratio of 11.8, which is above their historical average.

I think the current valuation is in nosebleed territory, making Upstart a bad buying opportunity right now. Moreover, I believe the company still has a lot to prove in terms of posting consistent growth and positive earnings before it even enters my watch list.

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Upstart. The Motley Fool has a disclosure policy.