Reached (NASDAQ: UPST) has taken the lending world by storm with its AI-powered loan approval engine. The company uses thousands of data points to assess people’s creditworthiness for personal loans — and now car loans — but omits one key metric that has historically been used for this purpose: credit score based on FICO. Upstart seeks to provide a better alternative to the traditional credit score, which for many people misrepresents the actual risk they pose to a lender.

What makes Upstart unique is that it simply sells its decisions to banks looking to lend to consumers who have lower credit scores. Thus, 94% of its turnover presents no credit risk. The company announced its fourth quarter results on Feb. 15, and the strong results showed it had a viable path to becoming the financial industry’s new standard for determining creditworthiness. This stock is one I wouldn’t even think of selling, and I might even buy more soon.

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1. Adoption is rapid

At the end of the third quarter, Upstart had 31 banking partners. That number grew 35% sequentially to 42 at the end of the fourth quarter, and those partners issued nearly 500,000 loans with a nominal amount of $4 billion using its artificial intelligence engine. As a result, the company’s revenue continues to grow like crazy – up 252% year over year in the fourth quarter to $305 million.

What’s particularly impressive about Upstart’s growing popularity is that for a growing number of partners, its system actually replaces credit scores, not just supplements them.

The company now has seven banking customers who have scrapped all traditional credit score requirements for potential borrowers — down from four in Q3 — likely because they recognized Upwork’s AI is more accurate than inherited method.

2. Its profitability growth is impressive

Upstart’s combination of rising revenue and an impressive level of automation has allowed it to grow its net income and free cash flow at rates much faster than its revenue. At this point, the platform automatically approves 70% of the loans it processes, so it takes little time and little human capital to generate revenue from it. This lets more money flow from the top line to the bottom line. In the fourth quarter, the company reported a profit of $59 million, representing a net profit margin of almost 20%. Upstart also reported that its free cash flow for the full year increased 1,430% to $153 million.

This shows that it is successfully capitalizing on its revenue growth and that money will allow Upstart to reinvest heavily in itself. Previously, it spent heavily on researching and refining its AI engine, as well as marketing. The company could also spend up to $400 million on stock buybacks. Management has said that if it believes the company’s stock is undervalued, it wants to be able to capitalize on it and reward shareholders as well.

3. He brings his successful formula to new markets

Upstart sees clear opportunities to expand its potential market. The company announced its first foray into auto loans this quarter, with more than 410 dealerships using its determinations and 10 banking partners. This encouraging level of early adoption has made management comfortable enough to estimate that its auto loan volume for 2022 could reach $1.5 billion.

That’s relatively small compared to its total lending volume in 2021 of $11.7 billion — but management sees auto lending as a major growth opportunity. Chief Executive Dave Girouard, speaking on the company’s earnings conference call, said he viewed his auto lending segment today as being in a similar place to where his personal loan activity in 2019. For reference, since the fourth quarter of 2019, the company’s personal loan volume has increased by 310%.

Why I’m Buying More (and Definitely Not Selling)

Chief Financial Officer Sanjay Datta, also speaking on the conference call, said the company was seeing a return to normal in default rates. He had expected higher delinquencies due to a slowing economy after the pandemic, but Datta said he does not expect rising default rates to hurt the business. For investors worried about Upstart’s performance in a down economy, that’s a good sign. This shows that its AI seems to be accurate in its approval decisions, even if the defects increase widely – which has been an issue in the past.

With the fog surrounding this potential major risk starting to clear, now could be the perfect time to add Upstart shares to your portfolio. Management expects 2022 revenue of $1.4 billion, meaning shares are trading at just 8.5 times forward sales – a major boon for a company growing at percentage rates three digits. This low price is particularly attractive given the company’s stellar performance, which is why I’ll likely be buying shares soon.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.