Upstart Holdings, Inc.'s (NASDAQ:UPST) Stock Retreats 26% But Revenues Haven't Escaped The Attention Of Investors

Upstart Holdings, Inc. (NASDAQ:UPST) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Looking at the bigger picture, even after this poor month the stock is up 81% in the last year.

Although its price has dipped substantially, when almost half of the companies in the United States' Consumer Finance industry have price-to-sales ratios (or "P/S") below 1.6x, you may still consider Upstart Holdings as a stock not worth researching with its 8.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Upstart Holdings

How Upstart Holdings Has Been Performing

Recent revenue growth for Upstart Holdings has been in line with the industry. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Upstart Holdings.

Do Revenue Forecasts Match The High P/S Ratio?

Upstart Holdings' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. Still, lamentably revenue has fallen 4.6% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 30% per year during the coming three years according to the analysts following the company. With the industry only predicted to deliver 14% per annum, 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. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Upstart Holdings' P/S Mean For Investors?

Even after such a strong price drop, Upstart Holdings' P/S still exceeds the industry median significantly. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Upstart Holdings' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider before investing and we've discovered 4 warning signs for Upstart Holdings that you should be aware of.

If these risks are making you reconsider your opinion on Upstart Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.