Upstart Stock Dropped After Earnings -- Could It Be a Screaming Bargain Right Now?

Upstart (UPST 0.45%) recently released its second-quarter earnings results and beat analyst expectations on the top and bottom lines. Not only that, Upstart posted a surprise profit, raised guidance, and virtually every growth metric in the report looks strong. After a 20% post-earnings drop, is Upstart stock a buy now? Let's take a closer look at how the lending technology company has performed recently, why the stock might have dropped after earnings, and why there could be plenty of upside potential ahead. Image source: Getty Images. The numbers look very strong As mentioned, Upstart handily exceeded expectations in the second quarter. Loan origination volume grew by 154% year over year to $2.8 billion, and that's despite a challenging lending environment. Revenue more than doubled, and although Upstart itself called for a modest loss in the second quarter, the company surprised investors with its first quarter of GAAP (generally accepted accounting principles) bottom-line profitability in years. Why did Upstart's stock fall? To be perfectly clear, Upstart's business looks strong. But that doesn't mean the stock fell for no reason. There were a couple of metrics that could have caused the move: Upstart's conversion rate increased sequentially from 19.1% to 23.9%. This is the percentage of people who check their rates on Upstart and end up getting loans. This could be an indicator that Upstart is significantly relaxing its lending standards to fuel growth. Upstart is holding over $1 billion in loans on its balance sheet, about 25% more than at the end of the first quarter. Most of these are held for research and development (R&D) purposes, but in a nutshell, more loans on the balance sheet means more risk. Massive potential from here Upstart's core business is personal loans, and even with more than $10 billion in annualized volume, it still processes a single-digit market share of all personal loan volume. So, there could still be plenty of room to grow its core business. This is especially true if interest rates start to fall. Americans have $1.2 trillion in credit card debt, and as refinancing through personal loans gets more affordable, it could be a massive opportunity. However, it's Upstart's two newer loan verticals -- auto and home loans -- that are most promising. For starters, the auto loan market is roughly 5 times the size of the personal lending market, and Upstart's auto volume has grown sixfold over the past year. On the home loan side (which is the newer of the two), Upstart grew its home loan originations by 67% sequentially. And this is an enormous opportunity -- especially when it comes to Upstart's focus: home equity lines of credit (HELOCs). Homeowners in the United States are sitting on $35 trillion in home equity, an all-time high, and as rates fall, there's a lot of pent-up demand for tapping into it. Even though the growth has been impressive, auto and home loan originations combine for less than 7% of Upstart's business. But if the current momentum continues, that won't be the case for long. Should you buy Upstart stock right now? Upstart isn't a cheap stock, even after this decline. It doesn't have an established record of profitability, the lending environment is still not great, and there's lots of economic uncertainty. At more than 9 times trailing-12-month sales, Upstart still trades at a premium. However, this was a stellar earnings report. Not only did Upstart beat expectations on the top and bottom lines, but it also raised guidance and is growing rapidly in its new verticals. I'm hesitant to call Upstart a "bargain," and it's likely to be rather volatile for the foreseeable future, even if things go well. So, keep that in mind before deciding to invest.