With triple digit growth and record profits, Q4 was an exceptional finish to a breakout year for upstart. 2021 will be remembered as the year Ai lending came to the forefront, kicking off the most impactful transformation of credit in decades. The stock moved up about 35 today. Now this is a stock that has re-taught me a very, very powerful lesson.

You go over to their improvements. Fourth quarter revenue saw an increase of 252 percent from fourth Quarter of 2020. transaction volume and conversion rate. Those are up 301 percent from the same quarter of the prior year.

Income from operations here in Red jumped from 10.4 million to 60.4 million. Gap net income in Green jump from 1 million in the fourth quarter of 2020 to 58.9 million in the last quarter of 2021.. that's a 58x jump adjusted net income in Blue Jump 16x. They also don't believe that this growth is going to stop for full year 2022.

They are now projecting 1.4 billion in revenue which continues the extreme growth they had in 2021. They also announced a 400 million share buyback which showcases the strength of this company. which is crazy because just a few weeks ago we were hearing this is just a loser meme stock or the nicer analyst would say oh, this is a stay-at-home pump stock. This is going bankrupt real fast Sally.

And then all of a sudden you have strength in every category and so much confidence in their future that they're going and doing a massive share buyback. So backing up for just one moment for full context here. the way that I value companies is. I look at the strength and growth rate of revenue, and I use things like track record leadership, total addressable market, competitive edge, and the actual uniqueness of the products and services that are being offered to project how strong the revenue is going to grow in the future, and how much extra value is going to be added to customers that can then be sold.

But we know that's not the perfect strategy, right? In fact, research shows that in the first year, almost half of your stock's performance is simply going to be based on the multiple that the market is willing to pay for your company sales. So all the skill and work and effort you put into valuing your company very very little of it in the first year has anything to do with you being right. It has a lot to do with the multiple that the market's willing to pay. This chart is for S.

P 500 companies. Multiples on Grove stocks probably take up about 70 or more of growth company valuations, which is fun when you're trading momentum and it's fun when you're trading cycles. But we know when it comes down to long-term value, what you focus on is revenue growth because that is the primary driver of stock market returns after a year time horizon. That's the characteristic that measures the business's actual performance and is the one that is most relevant, right? Put another way.

And in a kindergarten style of drawing in your best case scenario, a perfect company would look something like this: a steady overall uptrend in real value. But even in the best case scenario, your ideal scenario if you actually look at what the stock price does. during this time period, it goes into extreme euphoria and dysphoria cycles, getting far ahead of itself and far behind itself. The real value of a company can be steadily up trending for years, but the stock market is a lot less efficient.

The stock market will beat it down dramatically below its real value and then hype it up dramatically above its real value. And I know I sound like a broken record. I say a different version of this pretty much every night, but it's so important to understand these cycles because people get lost in them. They confuse euphoria and dysphoria cycles with actual change in value, and they miss the forest for the trees.

You can play off these euphoria and dysphoria cycles, and I actually think you should play off them to add some extra alpha on the market. But you have to understand: when you're valuing a company, you're valuing the real value. You're not valuing Putin or Jerome Powell's feelings. You're not valuing the stock market's emotions.

You're valuing the company and what they're doing and how they're scaling up value. And ideally you're also taking advantage of these dysphoria and euphoria and efficiencies. In a world where very little of your returns in the first year are going to be based on the actual company itself and all of your returns over the next five years are going to be based on the actual company itself, it makes sense to understand what you're actually doing in the position and if it's a position that you're buying because you like the company, you have to look at the longer term time horizon image. But the reason that I bring this up is because Upstart has been a very emotional and really emotionally trying trip for me.

If you followed us last year, you know that my analysis as Upstart dipped into the 90s and 80s was that it was incredibly undervalued based on the growth trajectory and the growth that I saw playing out in the upcoming quarters and years. I had set a price target at 170 and I was determined that that was the fair value for the stock even though it was trading at 90 and then 80 and it kept losing value. The market disagreed for a while, but eventually the price target was hit and Upstart released their earnings and they blew us out of the water and I went and upgraded the price target to 245. But then it went to 250 and then 300 and then 400 and I second guessed myself.

I said, geez, this is running up so much and so relentlessly And it's running up so much farther than my price Target. Maybe I missed something big and I'm an idiot for thinking this stock is only worth 245, But I went back to the numbers and I re-ran them more than a couple times and I looked at different scenarios and in my mind, there was no way that any of the numbers justified this to be over 250, 270, 300, 350. Those numbers didn't work at all. If you go back to our videos at the time covering up start, I said, hey, I can't upgrade this.

This doesn't make sense to upgrade, but week after week it kept going up. Hedge funds started cycling into it. Retail traders started following it, after them and it turned into an insane momentum trade. But going back to my Kindergartner chart, that's exactly how companies trade.

The stock price doesn't follow the real value, it follows extreme euphoria and dysphoria cycles. and in growth stocks, this is so much more exaggerated. But anyways. Then we had a massive cool off in Fintech, which started to cool off an upstart and then you got the overall market selloff and a round two of a huge growth crash and then it dumped so fast.

Hundred dollars down, 150 down. Then you blew through our price target and went all the way back down. You went from insane unchecked euphoria to insane unchecked dysphoria, which is kind of our mo of what we talked about on this channel exploiting those cycles, But still. that same thing that happened that caused me to question my analysis when it was running up to the euphoria cycle levels also hit me about five times as hard.

When we got to those dysphoria cycles, I started thinking, wait a second, this is down 50, 60, 70 percent. Now from its highs, Does the market know something that I don't know? When stocks go down, the market has a way of telling you you suck, you're an idiot, You're A And honestly, I gotta tell you from my own experience, sometimes the market's right on that and only time will really tell if upstart actually achieves what I think it's going to achieve over the upcoming years. But the thing is that emotional questioning on both the euphoria cycle and the dysphoria cycle is a very important lesson. And it's a reminder to me and I think for you as well that hey, it's okay to feel the emotion of doubting your analysis.

It's okay to go back to the data and recheck your numbers and due diligence to make sure that you have conviction in what your original analysis was. It's okay to have emotions. People on Twitter are going to say that you're a dirty little wimp if you have emotions. but it's okay to have emotions.

It's just not okay to be guided by them. Going back to my drawing, these are the emotions of the market. the emotional highs and the emotional lows. And the emotional highs.

and then the emotional lows that only follow the real value very very loosely unless you look at it over a very long term time horizon. If you let your emotions be attached to the upcycles and down cycles of the emotions of the rest of the market, you're just going to be buying high and selling low constantly on the overall uptrend. Learn to handle and accept these cycles instead of fall for the cycles, and you're going to do very, very well with Upstart and many other companies. The lesson is focus on the real value and focus on getting good entry and exit prices using the dysphoria and euphoria cycles.

But anyways, folks, I actually want to go through this earnings report because they killed it. Just in case somebody asks you on a live television interview what Upstart does. Upstart is essentially a lending platform that uses more data points and an ai to get a better risk assessment of credit applicants, which can help reduce premiums, increase approval rates, and overall lower defaults. It's a win-win for consumers and banks, and a nice middle finger to the traditional credit ranking system that leaves out a lot of people that have a very low likelihood of actually defaulting and also would be very, very profitable.

For lenders, you look at the growth trajectory of revenue, which is, of course, the primary driver of long-term stock returns. Not only is it up 252 year-over-year but it's been consistently up quarter over quarter. You had Q4 of 2020 87 million, and each quarter it jumped massively scaling up to 305 million. In the last report we got yesterday, a lot of analysts discounted the stock as a stay-at-home stock, but apparently getting good rates on your lending and getting lower default rates is not something that you want just because there's a virus going around.

it's actually something that's valuable outside of a virus going around. And I think that in a higher interest rate environment, which we're heading into to some degree, it's going to be even more important to get the best rate possible. So anyways, consistent growth quarter over quarter. But you look at this yearly trajectory you see consistently growing far above the market average from 2017 to 2018 to 2019 and to 2020.

but then from 2020 to 2021? I mean, it just goes to the moon. you jump from 233 million in revenue to 849 million in revenue. This company for the last four years of development has been extremely strong and keeping its head down and it's paying off. And if 2022 goes the way they are guiding for, this is what we'll be looking at next year and what exactly is driving this growth.

Well early around Q1 Q2 of last year, we started talking about how Upstart was taking very, very bold moves into the auto loan segment, which is a very, very relevant and important segment for Upstart, a segment that quite frankly has a lot of people that get priced out of cars because they can't qualify for loans, but they're also very unlikely to default on loans, a segment with a ton of untapped customers and that started driving no pun intended their gruff, but it's going to really drive their growth over the upcoming year. But you look at the bigger picture here. the transaction volume of loans using an Upstart platform has gone parabolic, and accordingly, Upstart is being trusted with decisions on bigger and bigger dollar volumes. Going back to the analysts and their dismal prediction that Upstart is just a stay-at-home stock.

Well, actually, if you look at the data, the pandemic derailed its growth trajectory and it took it out of commission for really three quarters. It dropped huge and then it took three quarters to get back to its pace of growth. You could certainly say the Fed helped pump multiples, but you can't say that this was a stay-at-home stock and for the it needs to be profitable or it's a clown company crowd. Upstart has had kind of a back and forth tease in terms of profitability and profitability growth, but this last quarter of record profits really solidified an overall uptrend, record profits, and an overall trend of more profit.

So I would say almost by every single metric, Upstart was a huge, stinking success, and it's guiding for continued success into this new year. That being said, there are some volatile conditions coming right now in consumer behavior shifts that I do believe will complicate a lot of these estimates and guidance that Upstart gave. And that's just being real. The economy is in a very strange situation right now, but if you look at the overall trend, it's very clear that Upstart has found a untapped market.

and it's killing it in that untapped market. and it's starting to steal market share. And to some people, it might be very difficult to understand why I'm so excited about a stock. Even though it has gone up 35 today, it's still down a lot from all-time highs.

So why am I excited about it? The reason that I'm excited about it is because Upstart has a lot more value now than it did when it was at all-time highs that were about 4x the current price and going back. The driver of stock market returns. Well, the primary driver over the long run isn't multiples, which is what has been crunched on Upstart, but rather sales growth and sales growth is killing it. The part on this chart that really matters for real value of a company is going to the moon at the same time that the multiple crutching has provided a very interesting opportunity for a dip.

Buy. Do I think right now is a good time to buy Upstart? Yes, it's at a very, very good price. Do I think that you might get a better price? Yes, because we just came off of a massive earnings pump, and earnings pumps tend to get sold at least a week or two later in this market. Do I think you're going to be able to time a perfect entry? No.

But if you're looking at these numbers and you're looking at the long-term growth trajectory and you're looking at a strong long-term uptrend in the euphoria and dysphoria cycle, then I would say this is going to be one of the best opportunities out there. Anyways, folks that caps off this video. If you have any questions, feel free to reach out to us below or join us on Ziptrader Circle. if you'd like to learn how to trade with our step-by-step lessons, our private chat, our daily morning briefings, as well as our full price target list.

I'll put a link to Ziptraderu below. have a good one and I'll see you in the next video.