Fintech
Pagaya Technologies (PGY): A Fintech Stock Not for the Faint-Hearted Investor
Technology stocks continue to dominate returns despite recent volatility, with the NASDAQ index up more than 18.5% year-to-date. Under that umbrella are fintech companies focused on financial services innovations as a technological bridge to the future of banking and finance. Companies like Pagaya Technologies (PGY) are at the forefront of this new wave, which is trying to revolutionize the lending industry by enabling real-time data-driven credit ratings. However, the stock is highly volatile and not for the faint-hearted investor.
The company has had an impressive performance in Q1’24 and strong revenue growth over the past three years. However, it is still considered a high-risk, high-reward stock.
Pagaya Takes Steps to Increase Profitability
Pagaya is among a new generation of fintech companies using artificial intelligence, machine learning techniques, and big data analytics to provide institutional lenders with a more accurate way to review credit applications. The company works with various financial institutions, such as banks, pension funds, and insurance companies, to apply data-driven decision-making to improve people’s access to credit.
Pagaya manages billions of dollars in loans across a variety of sectors, including personal loans, auto loans, credit cards, and real estate. Its AI-powered technology analyzes consumer data to estimate risk and reward. With its two-sided network, Pagaya facilitates a seamless flow of consumer credit and real estate assets to investors. The company has demonstrated commitment to its expansion strategy by introducing a POS business in partnership with US Bank. It is expected to launch on their network in the second half of 2024.
In addition to executing strategies to increase profitability and achieve positive net cash flow, the company is streamlining its operations and accelerating key growth areas. As part of these initiatives, Pagaya expects annualized gross cost savings of approximately $25 million. As a result, the company has revised its 2024 guidance for adjusted EBITDA upward by $10 million to $160-$200 million.
Pagaya’s recent financial results and outlook
Pagaya Technologies beat analysts’ estimates for its first-quarter 2024 earnings report. Total Revenue of $245.28 million beat estimates of $225.96 million, driven by a significant 31% year-over-year growth in network volume, beating its forecast to reach $2.42 billion. Another record was set in revenue from commissions less production costs (FRLPC), which reached $92 million, an increase of 84% year-over-year.
This increased the Fee Revenue Less Production Costs (FRLPC) margin to 3.8%, an improvement of 109 basis points from the prior year. Adjusted EBITDA for the quarter exceeded the $32 million forecast at $38 million, reaching $40 million. Although a net loss of $21 million was reported, this was an improvement from the prior year period with a $40 million decrease in losses. Earnings per share of $0.20 surpassed consensus expectations of -$0.04.
In an effort to strengthen its capital position, Pagaya recently raised $330 million through corporate loans and equity raisings.
For the second quarter of 2024, management expects network volume to fall between $2.2 billion and $2.4 billion. Total revenue and other income is expected to be between $235 million and $245 million. Adjusted EBITDA is expected to be between $40 million and $45 million. For the full year 2024, network volume is expected to fall between $9.0 billion and $10.5 billion. Total revenue and other income is expected to be between $925 million and $1,050 million. Adjusted EBITDA is expected to be between $160 million and $200 million.
What is the price target for PGY stock?
The stock has been exceptionally volatile, with a beta of 5.9. It fell 30% immediately after the company surprised markets with a $330 million capital raise in March. However, it has recovered much of the lost ground, rising 48% since then. The shares are trading at the lower end of the 52-week price range of $8.56 – $33.96 and are showing continued positive price momentum, trading above 20-day (13.45) and 50-day (12.72) moving averages.
Analysts who follow the company have taken a cautiously optimistic view of the stock. For example, analyst Keefe Bruyette Sanjay SakhraniA five-star analyst according to Tipranks, recently began tracking Pagaya with an Outperform rating and a $23 price target on the stock, emphasizing the company’s solid growth potential.
Overall, Pagaya Technologies is rated a Moderate Buy based on seven analysts’ recommendations and recently assigned target prices. The average target price for PGY stock is $23.17which represents a potential upside of 53.04% from current levels.
Conclusion on Pagaya
Pagaya has shown encouraging financial results and an optimistic outlook for further upside. Investors interested in this compelling, high-risk, high-reward investment opportunity may want to capitalize on the recent strong growth trajectory and ride the momentum train before the stock price rebounds to higher levels.