Why Upstart Stock Climbed 30% in October

Continuing its volatile journey, Upstart (NASDAQ: UPST) stock gained 30% in October, according to data from S&P Global Market Intelligence. The market gave it a thumbs-up after the Federal Reserve lowered interest rates for the first time in four years.

When will Upstart start up again?

Upstart enchanted investors when it first became a public company, and its stock climbed to astronomical heights before crashing and losing most of its value. Since then, it's bounced back and forth between extreme highs and lows.

Upstart operates a credit evaluation platform powered by artificial intelligence, and while it was supposed to be the next great thing in credit scoring, it has been highly affected by the interest-rate environment. Although its systems are able to identify credit risk more accurately than the traditional credit scoring systems, it's been much harder to do that when interest rates have been elevated and default rates are higher. Lenders are being more careful about how they approve candidates, and Upstart's business has been in freefall.

However, as interest rates come down, business could finally pick back up. Lower risk of default should lead to higher approvals and more demand for Upstart's services.

Upstart's revenue declined for six straight quarters before demonstrating a year-over-year increase in the 2024 first quarter. It reported another decrease in the second quarter, but management is guiding for an 11% increase in the third quarter. It has also reported net losses throughout this period, and that's not expected to change over the next few months. Wall Street is expecting a $0.66 loss per share in 2024, but then for that to swing to earnings per share of $0.26 next year.

The future looks bright

Upstart was new and untested before interest rates went up a few years ago. It didn't withstand the test of high interest rates, but it performed incredibly well under low-interest-rate conditions. A silver lining from this period, though, is that Upstart's platform is now enriched with tons of new data incorporating challenging conditions and should be able to identify credit risk more accurately under more varied circumstances.

There's still plenty of pressure on the company right now, but if you can envision the company in five years from now, it's likely that it will be in much better shape, with a climbing stock.

However, as noted, Upstart stock has been volatile over the past few years. It's not the right stock for anyone who avoids risk.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $22,292!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $42,169!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $407,758!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 28, 2024

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Upstart. The Motley Fool has a disclosure policy.