After Leaping 54% Upstart Holdings, Inc. (NASDAQ:UPST) Shares Are Not Flying Under The Radar

Upstart Holdings, Inc. +2.73%

Upstart Holdings, Inc.

UPST

22.54

+2.73%

Upstart Holdings, Inc. (NASDAQ:UPST) shareholders have had their patience rewarded with a 54% share price jump in the last month. The annual gain comes to 209% following the latest surge, making investors sit up and take notice.

After such a large jump in price, when almost half of the companies in the United States' Consumer Finance industry have price-to-sales ratios (or "P/S") below 1x, you may consider Upstart Holdings as a stock not worth researching with its 6.4x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Upstart Holdings

ps-multiple-vs-industry
NasdaqGS:UPST Price to Sales Ratio vs Industry December 30th 2023

What Does Upstart Holdings' P/S Mean For Shareholders?

Upstart Holdings could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Upstart Holdings.

How Is Upstart Holdings' Revenue Growth Trending?

Upstart Holdings' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 46%. Even so, admirably revenue has lifted 147% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 31% each year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 13% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why Upstart Holdings' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The strong share price surge has lead to Upstart Holdings' P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Upstart Holdings' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Upstart Holdings, and understanding these should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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