Global markets edged higher, US Markets (S&P 500 Index, +0.3%) seesawing as it tried to recover from its sharp sell-down recently.
The beaten down tech sector was the best performer to help lift the broad market into the green as the NASDAQ index trades well into bear market territory, with most sectors traded lower over the sesison. Investors remain very cautious about risk assets amidst a long list of headwinds for global growth, namely expectations for aggressive central bank tightening, the lockdowns in China and the risk of an energy crisis in Europe related to the Ukraine war. Volatility remains very high as markets await US inflation data due tonight.
European markets (Stoxx 600 index, +0.8%) closed higher, after reaching a two-month low with financials leading gains – with most sectors trading higher.
We believe markets are becoming fairly valued (especially in Australia and New Zealand) on a medium-term investment horizon, but near-term there is still further downside risk with sentiment weaken due to various reason and earnings pressure in play over the horizon for most companies. We would suggest averaging in only small positions over the near-term while holding back more capital for later once selling pressure subsides, and one of the many macro-level headwinds start to ease.
Upstart (UPST.NASDAQ)
Upstart shares crashed -56% after delivering weaker than expected guidance despite another quarterly result beat. Revenue for the first quarter of 2022 came in at $310m (up +156% from last year) and earnings per share coming in at $0.61 per share – both well ahead of market expectations.
However management lowered their 2022 full year revenue guidance from $1.4 billion to $1.25 billion, the new revenue guidance representing +47% growth from 2021 – which didn’t bode well with investors.
Growth outlook continues to remain promising boasting 500 car dealerships using the platform and 57 banks and credit unions. However economic uncertainty is becoming the major cause of management to lower expectations.
As a high growth tech stock in a volatile market this type of pull-back is becoming the norm but we think it may be overdone. Considering the fact the business is still forecast to grow a strong ~40% rate is still reasonably attractive even in a challenging environment. We believe Upstart is attractively priced at current levels, even when taking into account its “lower” growth rate trading at 1.6x 2023 revenue multiple and 11x 2023 earnings multiple – much cheaper than other growth tech companies.
We maintain our BUY rating with a high-risk caveat, given it is still a high growth tech stock and uncertainty how a slowdown in economy and rising interest rate environment will play out on overall lending demand, and Upstart’s market penetration.
Australia & New Zealand Market Movers
The Australian market was down yesterday (ASX200 index, -1%) in a day filled of broad-based selling.
Material and Energy stocks were hardest hit has commodity prices fell amidst concerns of weaker demand outlook due to China’s covid induced lockdown/restrictions.
The New Zealand market (NZX 50 index, -1.3%) was down yesterday as markets struggle with global economic uncertainty, with most of the market trading lower.
Avoiding the sell-off was Ryman the best performing stock of the day jumping 6.7%, reversing its Monday losses.
Air NZ was one of the biggest losers down -8.5%, likely due to investors dropping their new $0.53 per share shares from the capital raise.
3 Things Markets will be Watching this Week
- Geopolitical risks remain elevated given the Russia/Ukraine conflict.
- Inflation data from US and China (CPI and PPI)
- Locally, earnings from Westpac, Xero, Pushpay and trading update from CBA