This stock has been a 10-Bagger in less than a year – and could still be a buy
THEend tech company Reached (NASDAQ: UPST) has been one of the best performing stocks in recent memory, going from its IPO price of $ 20 in December to over $ 320 as of this writing. However, the company’s performance clearly justifies this move, and if things go well with the expansion of auto loans, there could be more upside potential ahead, as Matt Frankel, CFP and Jason Hall discuss. from Fool.com contributors. fool live Video clip, recorded September 20.
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Matt Frankel: Upstart isn’t the first company to try and do what it does. Upstart tries to improve access to credit for people traditionally underserved by the system. There have been a lot of companies that are going to revolutionize the way we give credit, no one has done as well as Upstart. Jason we talked about it first. But very fast Upstart, they just do a great job of predicting risks better, predicting who is going to default on loans. They get about 75% lower default rates for their clients. They have provided a system for banks to lend money, and they can make it better than FICO, which is the gold standard. With that, I’ll let Jason talk about it.
Jason Hall: Now that is the key. How many times have we heard the story of tech leaders who decided to go for another business because they were smarter and can do something when it fails miserably? Upstart in this case is the idea that there is better data, there is better data points out there than this stuff that is Fair Isaac and these others are using to identify credit risk. They point to the fact that there are millions of people in the United States alone, who are essentially outside the modern bank credit system.
The way we normally do things and build a credit history, and no one is really focused on trying to accurately assess what these people’s true credit risk is. First, there is an issue of fairness. You therefore exclude a large number of people from access to credit. You charge them a premium even though they don’t necessarily have a higher credit risk, and that creates a huge opportunity for the company that can crack that code to make a ton of money. Guys, I’ll say this. Looks like they’re doing it because, you know what’s going on? They originate these loans and they sell them. Banks buy them.
Having said that there is something there. If financial institutions looking to own yield instruments are willing to buy these things, that says something. The growth rates are pretty amazing. I think one thing that we have talked about a lot that is always worth mentioning is almost a year ago now, I think it was in November of last year, maybe early December, made an acquisition in the auto industry, which really opened the door to getting into this business because they didn’t lend automatically at all, and if you think of a more predatory lending environment than the one they used in the auto industry, for example, is very predatory.
Breaking that barrier, I think, is really powerful and it’s generated a lot of growth. I think two and a half quarters later it really seems to be working. I really like this company.
Jason Hall has no position in the stocks mentioned. Matthew Frankel, CFP has no position in the stocks mentioned. The Motley Fool owns stock and recommends Upstart Holdings, Inc. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.