Lending technology company Upstart (UPST -4.69%) has been one of the best performers in the stock market recently, with shares up by 236% over the past year as I write this. And while the company has produced a series of impressive earnings reports over the past three quarters, a valuation of about 12 times sales might seem expensive to many investors.
However, not only have the recent numbers been strong, but the future opportunity is massive.
Upstart's platform has been responsible for billions of dollars in loan originations, but it's difficult to overstate how large the opportunity is compared to what Upstart has captured so far.
Loan Type | Market Size (Annual Volume) | Upstart Volume (Annualized) | % of Market Opportunity Captured So Far |
|---|---|---|---|
Personal loans | $155 billion | $8.2 billion | 5.3% |
Auto loans | $677 billion | $172 million | Less than 0.03% |
Small-business loans | $895 billion | $0 | Not launched yet |
Home loans | $1.4 trillion | $108 million | Less than 0.008% |
Data source: Upstart Q4 2024 investor presentation. Annualized figures and year-over-year growth rates are based on fourth-quarter 2024 loan volumes.
What's more, the home loan opportunity could be even larger than it seems. The $1.4 trillion figure in the table above is based on loan volume in a recent one-year period. Not only has the real estate market been agonizingly slow for several years, but due to high interest rates, relatively few homeowners are willing to tap into their home equity. Homeowners in the United States are estimated to have about $35 trillion in equity in their homes -- the highest ever -- and this could be a huge catalyst for Upstart's HELOC business if rates fall significantly in the coming years.
The bottom line is that Upstart might seem like an expensive stock trading at about 12 times sales (and it is), but it's expensive for a reason.
Upstart not only has a massive opportunity ahead of it, but its growth rate and profitability are accelerating. It is expecting to be profitable on a GAAP basis in 2025 for the first time since 2021, and management anticipates the company's first $1 billion revenue year ever.
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