Why Upstart Holdings Stock Was Trading Down This Week

Key Points

• It seems that a rapidly growing number of investors believe its stock will flop.

• After all, a researcher reported a leap in short interest recently.

• 10 stocks we like better than Upstart ›

A researcher reported that there has been a notable rise in short interest with loan marketplace Upstart (NASDAQ: UPST). Since that nugget of information hit the market on Tuesday, the company's stock has obeyed gravity. As of early Friday morning its price was down by 16% week to date, according to data compiled by S&P Global Market Intelligence.

Coming up short

On Tuesday afternoon, Jefferies published a fresh report analyzing current short interest trends in the consumer finance space. Upstart, which harnesses artificial intelligence (AI) to boost its credit analysis capabilities, was noted as having experienced one of the highest rises in that metric.

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According to reports Jefferies said this stood at just under 28% for the loan specialist. This was more than 600 basis points higher than the July figure.

Short interest is the portion of a company's outstanding share count that has been sold short by investors, but not yet covered (a short-seller is obliged to buy the amount of shares shorted to close their position).

Zooming out, Jefferies wrote that in general, short interest for U.S.-listed stocks has been rising over the past three months. It found the sector with the most significant rises was fintech, giving Upstart the dubious honor of having notably high short interest in the field that's most affected by it.

Warning light?

Short interest is worth keeping an eye on, as it tends to reflect investor sentiment on a business. Short-sellers, of course, are doing their thing because they believe a stock will decline in value; Upstart's nearly 30% short interest, then, indicates there are many market players convinced the company has some rough days ahead of it.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group and Upstart. The Motley Fool has a disclosure policy.