Shares of Assets received (NASDAQ: UPST), a lender that uses artificial intelligence (AI) to make lending decisions, fell nearly 13.4% today after an analyst lowered its price target on the stock.
Wedbush analyst David Chiaverini maintained his neutral rating on Upstart, but significantly lowered his price target from $160 to $110. The stock is currently trading at $92.60.
In his research note, Chiaverini wrote: “We believe UPST’s valuation is appropriately reflected in its current relative valuation. Even though the stock has declined in recent months, valuation metrics including [enterprise value to sales] and prices/sales are still well above peer levels.”
He added: “We believe a premium valuation is warranted given the strong growth of the business, but an expansion premium is difficult to justify until we see that the recent surge in delinquencies is temporary.”
The mention of rising defaults is certainly surprising to hear right now, as most major banks have reported very good loan quality in their credit card portfolios in recent earnings calls. If this turns out to be a longer term trend, I think it would be very bad for Upstart, who basically said they wanted to replace Just Isaac Corporation (FICO) credit scoring with its credit underwriting models.
This is the first I’ve heard of the increase in delinquencies, so I’ll have to investigate further and see what’s said on the next earnings report before making a decision.
But then again, if this trend of rising delinquencies is true, it wouldn’t be good for the stock. Upstart claimed that its AI credit underwriting models can better gauge a borrower’s true credit quality, allowing it to efficiently approve and underwrite loans for borrowers that a bank or credit union cannot. would normally not be used.
Although Upstart’s valuation has become more attractive, I will definitely not buy this stock at this time with the credit issue hanging in the balance.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.