Could buying stocks today set you up for life?

upstart (UPST 6.06%) was once the talk of the town. In the 10 months since its initial public offering in December 2020, the stock has risen 1,190% to peak in October 2021. But it has generally been a downward spiral since then.

The stock is currently trading at 90% of its all-time high, but has seen positive momentum over the past two months. They might buy this fintech stock did today prepare you for life?

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Upstart has developed an artificial intelligence (AI)-based platform that analyzes more than 1,600 variables about potential borrowers. The tool is used by the company’s more than 100 banking partners to facilitate the lending activity of the customer base. Upstart, which can help automate the entire lending process, charges a fee for providing its AI model.

This clearly makes the business a disruptor to the traditional FICO-based scoring system. Upstart has raised $39 billion in loans since its inception. It is a significant amount.

But there is still a long way to go. The management team estimates that the total value of personal, auto, small business and home loans is worth $3.1 trillion annually. Upstart’s volume is a drop in the bucket, which theoretically indicates a long growth trajectory.

One potential catalyst that could work in Upstart’s favor is the prospect of lower rates. The Federal Reserve it just dropped its benchmark rate for the first time in more than four years. This could boost borrower demand.

The bad and the ugly

On the other hand, there are also some negative factors that cannot be ignored when it comes to Upstart. Slower growth is one of them. The upstart saw its revenue fall 1% in 2022 and 39% in 2023. The top line appears to be stabilizing, as sales are expected to rise 11% in the third quarter, but that’s off a low base this year last.

The current assessment is not as compelling as it once was. Shares are traded at a the price-to-sales ratio of 6.2, which is significantly higher than a year ago. This indicates an improvement in market sentiment towards the company.

There are also downright ugly trends that investors should watch out for. Most obvious is how dependent Upstart is on favorable external circumstances to achieve strong financial results, particularly in terms of interest rates. Upstart prides itself on being an AI-focused, technology-driven enterprise. But it turns out to be even more cyclical than traditional banks.

Interest rates may continue to decline in the short term. But we may never go back to the near-zero rates we saw a few years ago when Upstart was fueling monster growth. It probably doesn’t bode well for this company’s prospects.

Another thing to watch out for is Upstart’s income statement. This is not a profitable business as it posted a net loss of $119 million in the last six months. This is not a sign of a financially sound organization.

Investors should also think about competitive forces. Upstart management supports how large the various lending verticals are. However, I’m skeptical that Upstart will eventually make a significant dent.

That’s because the massive banks of monetary centers, a list that includes JPMorgan Chase, Bank of America, Wells Fargoand City Groupall handle a significant portion of lending activity in the U.S. And all have the resources to invest heavily in their own digital and AI capabilities. That could diminish any advantage Upstart’s model might have.

Upstart is just a $3.4 billion business today. Of course, investors looking for huge returns might believe that the company’s market cap could one day rise to a higher value. But there are so many variables that have to go right for that to happen, and I’m not so optimistic about a favorable long-term outcome. So I don’t think Upstart can set you up for life.