BUY when everyone hates a solid growth stock. Sell when everyone loves that same solid growth stock!
It will take a week or so for UPST to be back in the $350's after a short lived sell off. And here is why with actual reported number.
Lets do some number crunching to see what UPST's fair valuation to be.
Also to observe the pattern of how UPST reports its earnings and its guidance of future results at the end of each quarter.
2021 total net GAAP income: Q1 $10.1M + Q2 $37.3M + Q3 $29.1M + Q4 $18M = $94.5M
2021 total Adjusted EBITDA: Q1 $21M + Q2 $59.5M + Q3 $59.1M + Q4 $52M = $191.6M
2021 total Revenue: Q1 $121M + Q2 $194M + Q3 $228M + Q4 $260M = $803M
Fiscal year 2020 adjusted EBITDA totaled $31.5 million, which represents a 463% year-over-year increase compared to a fiscal year 2019 adjusted EBITDA of $5.6 million.
P/E = 153 = (at $300/shr with 97.6M outstanding shares = market cap of $29B)/EBITDA of $191.6M
Earnings growth rate compare to 2020: 508%
PEG = 153/508 = 0.3 (implying the stock is undervalued by 70%). In order for PEG to be 1, market cap should be: appx $95B or a stock price of $973 based on 97.6M outstanding shares). This is based on the growth rate of 508% YoY
The argue for the sell off has been the QoQ growth is slowing down thus impacting the YoY growth (both in terms of revenue and earnings).
Earnings
Q1 to Q2: earnings rate = Q1 $21M to Q2 $59.5M = 183%
Q2 to Q3: earnings rate = Q2 $59.5M to Q3 $59.1M = -6%
Q3 to Q4: earnings rate = Q3 $59.1M to Q4 (anticipated) $52M = -12%
Revenue
Q1 to Q2: Reveneu growth rate = Q1 $121M to Q2 $194M = 60%
Q2 to Q3: Revenue growth rate = Q2 $194M to Q3 $228M = 17%
Q3 to Q4: Revenue growth rate = Q3 $228M to Q4 $260M = 14%
Pattern of how the company guidanceed its EBITDA vs. what actually was delivered:
Q4 2020 guidance:
Q1 2021 EBITDA $14.6 to $15.3 million --> Actual delivered $21M (40% above guidance)
Q1 2021 Revenue: $112-$118M --> Actual delivered $121M (5.2% above guidance)
Q1 guidance:
Q2 EBITDA $23-$27M --> Actual delivered in Q2: $59.5M (138% above guidance)
Q2 Revenue: $150 to $160 million - Actual delivered: $194M (25% above guidance)
Q2 guidance:
Q3 EBITDA $30-$34M --> Actual delivered in Q3: $59.1M (84% above guidance)
Q3 Revenue $215M--> Actual delivered in Q3: $228M (6% above guidance)
Q3 guidance:
Q4 EBITDA $51-$53M --> Actual to be delivered in Q4...? (using a 50% discount then Q4 EBITDA= $77M).
Q4 Revenue$255-$265M --> Actual to be delivered in Q4...? (using a discount at 5% and being extremely conservative then Q4 revenue = Appx. $267M-$270M ).
The Q|Q earnings growth rate slowing is a temporary situation due to cost of investments to expand revenue in the growth areas (specifically new areas of Auto, Dollar loans, and mortgages) and of course continued investments in personal loan market.
What market is concerned about is the slowing Q|Q revenue growth rate from 60% (Q1->Q2) to 17% (Q2->Q3), and guidanceed 14% (Q3->Q4). This is totally understandable as the personal loan market has begun to move out of its infancy into teenage phase - meaning with rapid adoption of UPST's platform by lending institutions will start to significantly pick up starting next quarter into Q1 of 2022 (as implied in the conference call - which incidentally in my view was one of the worst best calls ever because of both CFO and CEO being extremely conservative in their guidance - which might be on purpose for some motives we are yet to see).
Now, if you add the auto loan expansion which has just started in Q4 and (again based on what was said on the conf. call) has already gotten traction trippling in numbers, the revenue growth rate should improve significantly starting Q4 and into 2022.
Further add to their business the newly areas of dollar loans and mortgages and I think 2022 will be a phenomenon year for UPST as a genuine super hyper growth company.
Anyone who has the cash to buy the shares now - in my humble view - will be rewarded handsomely in 3-6 months when (and not IF) the market cap goes up slowly into the $50B+ - or a stock price of about $500-$600/shr - (and I realize it will require a couple of gigantic balls to hold the shares and not afraid of its extreme wild swings)
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