The stock reached a high of $401.49 per share in mid-October, reflecting a 1,907% gain since its IPO less than a year ago. Despite solid financial results, valuation worries have pushed the company falling back down to earth and shares are now trading at 78% of their all-time high. Is UPST stock a good investment after that dreadful sell-off?
Banks frequently base their lending credit models on Fair Isaac’s FICO score, a three-digit figure that indicates a borrower’s creditworthiness (or not). The average FICO scoring has 12 to 20 factors and while Banks may include additional criteria, many of the more advanced credit models use no more than 30 variables. That, according to UPST, is an issue since Banks frequently lack adequate data to accurately estimate risk when making lending choices. As a result, some creditworthy borrowers are turned down and many of those who are authorized wind up paying too much interest in order to support the borrowers who will surely default. For example, whereas 80% of Americans have never defaulted on a loan, just 48% are eligible for prime rates.
UPST strives to improve the efficiency of the lending business. It gives lenders a set of tools for verifying a borrower’s identification, Bank Account verification and credit decisioning, as well as notification of unfavourable action and loan servicing. More crucially, its technology collects over 1,500 data points per borrower, considerably more than traditional credit models and compares them to prior payback events in order to calculate risk.
As a result, every time a borrower makes or misses a payment, UPSTâ€™s AI model improves. The network effect, according to management, is a considerable competitive advantage and the findings are very difficult to dispute.
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