What Happened:
Shares of AI lending platform Upstart (NASDAQ:UPST) jumped 48.9% in the afternoon session after the company reported second-quarter earnings results. Revenue, adjusted operating income, and EPS all exceeded analysts' estimates. Upstart provided revenue guidance and a rosy outlook for the next quarter, which blew past analysts' expectations. Management attributed the improved sentiment to advancements in its AI models. Zooming out, this was an impressive quarter that should delight shareholders.
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What is the market telling us:
Upstart's shares are very volatile and over the last year have had 59 moves greater than 5%. But moves this big are very rare even for Upstart and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock dropped 24.1% on the news that the company reported fourth-quarter results with revenue guidance for the next quarter, missing analysts' expectations as it cited a difficult lending environment. The topline guidance factored in the usual "seasonal softness" observed in the first quarter of the year. Also, the results showed that the company burned through a significant amount of cash during the quarter.
In addition, its gross margin decelerated significantly, impacting other profitability ratios. Lastly, during the quarter, the company observed "rising loan delinquencies in more affluent segments of the borrower base." Overall, it was a weaker quarter for the company.
Upstart is down 8.8% since the beginning of the year, and at $35.42 per share it is trading 31.8% below its 52-week high of $51.97 from August 2023. Investors who bought $1,000 worth of Upstart's shares at the IPO in December 2020 would now be looking at an investment worth $1,200.
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