Upstart Holdings (UPST) is back in focus after renewing its forward flow agreement with Neuberger Specialty Finance, with up to US$600 million allocated for consumer loans originated on its AI lending platform.

Recent trading shows building short term momentum in Upstart Holdings, with a 30 day share price return of 7.67% and a 90 day gain of 33.10%, set against a year to date share price decline of 28.08% and a 1 year total shareholder return decline of 47.96%.

Given the renewed funding agreement and fresh attention on AI enabled lending, it can be useful to see what else is moving in this space by checking out 33 AI small caps.

With Upstart Holdings trading at US$32.97, sitting at a reported 57% discount to one intrinsic value estimate and about 22% below the average analyst price target, investors have to ask: is this a mispriced AI lender, or is the market already factoring in its next leg of growth?

Price-to-Earnings of 63.9x: Is it justified?

On one side, Upstart Holdings screens as deeply discounted to one intrinsic value estimate and below the average analyst price target, yet its P/E of 63.9x tells a very different story when set against consumer finance peers.

The P/E ratio compares the current share price to earnings per share, so a higher multiple typically reflects the market paying more today for each unit of current earnings. For a company such as Upstart Holdings that operates an AI enabled lending platform, a rich P/E often implies that investors are assigning value to expected growth in earnings rather than just the latest profit number.

Here, the current 63.9x P/E sits far above the US Consumer Finance industry average of 8.4x and also above the peer average of 13.2x. This suggests the market is already pricing in a strong earnings trajectory. Against an estimated fair P/E of 33.2x, the present multiple is still materially higher. This points to a level that could move closer to that fair ratio if expectations or sentiment change.

Result: Price-to-Earnings of 63.9x (OVERVALUED)

However, investors still have to weigh risks such as Upstart Holdings relying on funding partners for loan volumes and its history of multi year total returns declining for shareholders.

Another view of Upstart Holdings using the SWS DCF model

While the 63.9x P/E makes Upstart Holdings look expensive, the SWS DCF model points the other way, suggesting the stock is trading at about a 56.8% discount to an estimated future cash flow value of $76.34. If both signals are right, what exactly is the market pricing in?

For investors weighing these two signals side by side, it can be useful to see how the cash flow based view is built in detail, rather than relying only on headline ratios, by going through the Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Upstart Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 43 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this mix of risks and rewards around Upstart Holdings feels finely balanced, take a closer look now and shape your own view with the 3 key rewards and 1 important warning sign.

Looking for more investment ideas beyond Upstart Holdings?

If you are interested in AI enabled lending with Upstart Holdings, it is worth lining up a few other high quality ideas so you are not relying on a single stock.

• Target long term compounders by scanning for established businesses with robust finances using the solid balance sheet and fundamentals stocks screener (48 results).
• Hunt for potential mispricings by comparing Upstart Holdings with companies trading on compelling metrics via the 43 high quality undervalued stocks.
• Prioritize resilience by focusing on companies that historically weather tougher conditions better with the 67 resilient stocks with low risk scores.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.