Upstart (UPST -9.39%) has recently been one of the stock market's best performers. Since the middle of 2024, its stock price is up by 244%, thanks to several consecutive earnings reports that were stronger than analysts expected.

Having said that, it's also important to point out that Upstart is still about 80% below its all-time high of $401.49 that it reached in October 2021. At that time, loan demand had exploded, thanks to the ultra-low interest rate environment, investor demand for loans was through the roof, and Upstart was a highly profitable business.

We're starting to see signs that good times could be returning. Upstart's latest guidance calls for $1 billion in revenue in 2025, which would be the first billion-dollar year in the company's history. Upstart also expects positive net income this year for the first time since 2021 (when it reached that record high).

A lot to like about this fintech lender

In the fourth quarter of 2024, Upstart's revenue grew by 56% year over year as loan demand increased. Investor demand for loans also increased significantly, and the company received $1.3 billion in new commitments from partners to purchase loans. Not only that, profitability improved tremendously, with an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of about 13% and a net loss that narrowed to $2.8 million from $42.4 million a year ago.

Perhaps most encouraging is that after several years of telling investors that expanding outside the core personal loan vertical was the key to long-term growth, Upstart is actually doing it. In the fourth quarter, it originated 1,715 auto loans with a total principal of $43 million -- more than triple the volume of auto loans in the fourth quarter of 2023.

Upstart also launched its home equity line of credit (HELOC) business in November 2023, and it is rapidly growing. Although the $27 million in HELOC volume in the fourth quarter might not sound impressive compared with the roughly $2 billion in personal loans it originated, it represents a 59% sequential increase -- and at a time when mortgage rates remain elevated.

The core personal loan market is $155 billion in annual volume in the U.S., which leaves Upstart lots of room to grow. However, the auto loan market is more than four times that size, and U.S. homeowners are sitting on about $35 trillion in home equity. To say that these new verticals could take Upstart to the next level is a major understatement.

A $400 stock price in 2025 is a bit of a stretch

To be perfectly clear, it's entirely possible that Upstart could break through to new highs in 2025 if the right combination of factors occurs.

However, while I think Upstart will get there eventually, it will likely take at least several more years. There's simply too much economic uncertainty, as well as the execution risk associated with scaling new lending verticals, for such a lofty valuation to make sense in the near future. Plus, it's important to keep in mind that when Upstart reached its all-time high, the interest rate and financial environment were much different than today's.

Consider this: In August 2021, Upstart issued $575 million in convertible bonds with an interest rate of 0.25% (that's not a typo) and a conversion price of about $285 per share. In September 2024, the company issued $375 million in convertible bonds with a 2% interest rate and a conversion price of about $46 per share. Times have changed a bit.

The bottom line is that although I believe Upstart is, in many ways, a stronger company than it was in 2021, a new all-time high -- which would mean a market cap of about $38 billion -- is likely to come after Upstart captures a significant portion of the auto loan and HELOC markets and establishes a track record of consistent profits.