Benzinga – By Zacks, a Benzinga contributor.
Upstart Holdings, Inc. (NASDAQ: UPST) has been one of the most searched stocks on Zacks.com recently, so it may be worth taking a look at some facts that could drive the stock's performance in the near term.
Over the past month, the company's shares have returned -1.4% compared to a +3.4% change for the Zacks S&P 500 Composite Index. During that same period, the Zacks Computers – IT Services industry, which Upstart belongs to, has lost 4%. The big question here is, what is the future direction for this stock?
While media reports or rumors about major changes in a company's business prospects usually influence the movement of that company's share price, leading to immediate price movements, there are always certain fundamental factors that ultimately drive a buy-and-hold decision.
Earnings forecast revision
At Zacks, we evaluate changes in a company's future earnings estimates above all else because we believe the present value of future earnings streams determines the fair value of a stock.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings forecasts in light of the latest business trends. When a company's earnings forecast goes up, the fair value of its stock also goes up. And if a stock's fair value is higher than its current market price, investors are more inclined to buy the stock, resulting in an increase in its share price. For this reason, empirical research shows a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
For the current quarter, Upstart is expected to post a loss of $0.39 per share, which would represent a 750% decrease from the year-ago period. The Zacks Consensus Estimate has remained unchanged within the past 30 days.
The consensus revenue estimate for the current fiscal year is -$0.93, indicating a change of -66.1% year over year. This estimate has not changed in the past 30 days.
Looking at the next fiscal year, the consensus revenue estimate is $0.21, which represents a 123% change from what Upstart was expected to report a year ago, with estimates unchanged over the past month.
The Zacks Rank, our proprietary stock rating tool with a strong outside-audited track record, effectively harnesses the power of earnings estimate revisions to provide a more certainty view into near-term stock price direction. The magnitude of the recent change in consensus estimates, along with three other factors related to earnings estimates, has earned Upstart a Zacks Rank #3 (Hold).
The chart below shows the evolution of the company's consensus EPS estimates over the next 12 months.
12 Month EPS
Revenue Growth Forecast
Revenue growth is arguably the best indicator of a company's financial health, but if a company can't grow its revenue, then nothing happens. After all, it's nearly impossible for a company to grow its revenue over the long term without growing its revenue. Therefore, it's important to know a company's revenue growth potential.
For Upstart, the consensus revenue estimate for the current quarter is $125.16 Million, indicating a -7.8% change year-over-year. For the current and next fiscal years, estimates are $557.68 Million and $643.51 Million, indicating changes of +8.6% and +15.4%, respectively.
Last reported results and surprise history
Upstart reported revenue of $127.79 million for the most recent quarter, up 24.2% from the same period last year. EPS was -$0.31 for the quarter, compared to -$0.47 in the same period last year.
Compared to the Zacks Consensus Estimate of $124.82 million, reported revenues represented a surprise of +2.39%. EPS surprise was +18.42%.
Over the last four quarters, Upstart has surpassed consensus estimates for EPS three times, and the company has surpassed consensus estimates for revenue three times in that period.
evaluation
No investment decision can be made efficiently without taking into account stock valuation. Whether a stock's current price properly reflects the intrinsic value of its business and the company's growth prospects is a key factor in determining future stock price movements.
Comparing the current value of a company's valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S) and Price to Cash Flow (P/CF) with the company's historical values ​​helps in determining whether the stock is fairly valued, overvalued or undervalued, while comparing a company with its peers on the basis of these parameters gives a good sense of the fairness of the stock's valuation.
The Zacks Value Style Score, a part of the Zacks Style Scores system, evaluates both traditional and non-traditional metrics, categorizes stocks into five groupings from A to F (A is better than B, B is better than C, etc.) to help identify whether stocks are overvalued, fairly valued or temporarily undervalued.
Upstart has an F rating on this front, indicating that it is trading at a premium to its peers.
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