The Bears Are Feasting on Upstart's Stock -- Here's Why I'm Still Buying
Anyone who has even been thinking about purchasing a home or car knows interest rates are rapidly rising this year. As the Federal Reserve hikes its benchmark interest rates, the ripple effects spread out to loans and debt assets across the entire economy. For example, risk-free Treasury bonds now offer higher yields than they did last year, which means that more risky forms of debt -- like mortgages or personal loans -- have to yield their loan owners more to compensate.
Those higher interest rates make loans more expensive for borrowers, which naturally leads to fewer loans being taken out. And that is taking a toll on Upstart (NASDAQ: UPST), a fintech company that uses an artificial intelligence model to assess the credit risk of potential borrowers, providing an alternative to the FICO score that lenders have used for that purpose for decades.
When fewer people apply for loans, that means less business for Upstart, which one reason why its stock is down this year. But it's off by an astounding 95% from its all-time high and 86% year to date, and the shift in its business environment isn't a complete explanation for why the stock fell quite that far. Last year, it had been pumped up to an unrealistic valuation. When it crashed, it had a long way to fall.
Source Fool.com
