In 1996, Fed Chairman Alan Greenspan warned about irrational exuberance among traders and investors. Over the following three years, the Nasdaq would go up by almost 300%. Trying to time the market could be the hardest — and least successful — strategy to investing.

One way to invest that might sound too easy is to buy only the companies doing the best and add money over time. That is especially true if the company is affecting legacy players in a huge market. Despite a stock price that is rising, Upstart Holdings is giving you this opportunity.

A ton of opportunity

Upstart has created a model using machine learning to look at risks. Its banking partners use the model by making better lending choices, mostly for personal loans. And it seems to be benefiting everyone. In a study done by the Consumer Protection Bureau, the firm’s strategy led to 27% more borrowers getting approved with a 16% lower interest. It’s also helping to give a better platform experience by automating these decisions. The firm is now looking at going into even larger markets.

In the first quarter, it bought Prodigy Software — a company that seeks to help auto dealers move their company operations online — and has listed credit cards, auto lending, and home mortgages as possible uses of its technology. These are much larger markets, and it might take years to achieve that penetration.

A ton of growth

So far, management is proving itself capable in the personal loan industry and providing every sign that they can repeat their strategy in auto lending. The company is growing so fast, it appears like executives can’t keep up. They reported three quarters, starting with its 2020 report, and has increased its fiscal year 2021 revenue every time. It has boosted the number by 50% in five months.

Wall Street is having a hard time keeping up too. The stock has now gone up by 480% since the IPO. If you believe the gains are supporting this, consider Upstart still only has a market cap of $13.2 billion.

The analysts will upgrade some more after the company’s Q2 earnings this week. Upstart reported $194 million in revenue — over a 1,000% y/y growth — and guided 2021 revenue to $750 million. According to Yahoo! Finance, the top analyst estimate for 2021 revenue is $605 million.

Author: Scott Dowdy

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