Upstart Holdings, Inc.'s (NASDAQ:UPST) P/S Is Still On The Mark Following 44% Share Price Bounce

Upstart Holdings, Inc. (NASDAQ:UPST) shareholders are no doubt pleased to see that the share price has bounced 44% in the last month, although it is still struggling to make up recently lost ground. The last month tops off a massive increase of 107% in the last year.

Following the firm bounce in price, you could be forgiven for thinking Upstart Holdings is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 7x, considering almost half the companies in the United States' Consumer Finance industry have P/S ratios below 1.5x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

We've discovered 2 warning signs about Upstart Holdings. View them for free.

View our latest analysis for Upstart Holdings

What Does Upstart Holdings' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Upstart Holdings has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Upstart Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Upstart Holdings would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 21% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 30% each year over the next three years. With the industry only predicted to deliver 14% each year, the company is positioned for a stronger revenue result.

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.

What We Can Learn From Upstart Holdings' P/S?

Upstart Holdings' P/S has grown nicely over the last month thanks to a handy boost in the share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look into Upstart Holdings shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you settle on your opinion, we've discovered 2 warning signs for Upstart Holdings (1 can't be ignored!) that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.