Why Upstart Stock Is Plummeting Today

Key Points

• Upstart reported its Q2 results and actually beat Wall Street's sales and earnings targets.

• The lending specialist also raised its full-year revenue target, but the stock is still getting crushed today.

• Investors are worried about inflation headwinds and competitive risks, but those who are risk tolerant may want to take a close look at the stock.

• 10 stocks we like better than Upstart ›

The stock of Upstart Holdings (NASDAQ: UPST) is sinking today following the company's recent earnings report. The fintech specialist's share price was down 18.2% as of 3:05 p.m. ET on Wednesday. Meanwhile, the S&P 500 was up 0.7%, and the Nasdaq Composite was up 1.1%.

Upstart released its second-quarter results after the market closed Tuesday and reported sales and earnings for the period that came in significantly ahead of Wall Street's targets. The company also raised its full-year sales outlook, but some cautious commentary from management spurred a big sell-off today.

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Upstart sinks despite strong Q2 results

By most measures, Upstart delivered a strong earnings update with its second-quarter release. The company posted earnings per share of $0.15 on sales of $257 million, crushing the average analyst estimate's calls for a per-share loss of $0.10 on sales of $225.4 million.

Loans originated through the company's artificial intelligence (AI) lending platform rose 159% year over year to reach nearly 372,600, and overall revenue was up roughly 101%. Even though the business posted an operating loss of $4.5 million in the period, performance from investments delivered an unexpected profit in the quarter.

Management even raised its full-year revenue outlook in conjunction with the report, but the beat-and-raise quarter hasn't been enough to prevent big sell-offs.

What's next for Upstart?

The company said that inflation continues to be a significant risk factor, and said it was seeing more competitive activity in the business' key service niches. On the other hand, it actually raised its full-year sales performance target to approximately $1.055 billion -- up from its previous guidance for about $1.01 billion.

With the stock seeing a big pullback despite a strong second quarter and encouraging performance outlook for the rest of the year, today's trading could present a worthwhile buying opportunity for risk-tolerant investors.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Upstart. The Motley Fool has a disclosure policy.