Can OppFi Become the Next Upstart?

Investors who are kicking themselves over missing Upstart’s (UPST) 990% gain since going public last December should consider taking a look at OppFi (OPFI). While Upstart has been one of the hottest stocks of 2021, racing to a $25.5 billion market cap, shares of OppFi are down about 20% over the same period.

While Upstart has garnered plenty of attention as a cloud-based lending platform that uses artificial intelligence to offer consumer loans, OppFi is also utilizing AI and exhibiting rapid growth in this same space. It hasn’t yet enjoyed the same investor attention or share price appreciation, indicating that it could present a potential buying opportunity.

OppFi recently came public via a SPAC combination with FG New America Acquisition Corp., and has since seen its shares fall below the $10 level at which the SPAC went public. Shares of OppFi  dropped from an all-time high of $11.60 in February  down to a low of $6.01 before recently rebounding into the $7-9 range, and settling at $8.15 at time of writing. (See OppFi stock charts on TipRanks)

Like Upstart, OppFi offers consumer loans, but the key difference is that OppFi places a particular focus on subprime and nonprime borrowers. OppFi utilizes artificial intelligence to make loans to individuals who are underserved or locked out of these types of products via the traditional banking system.

I am bullish on this stock.

OppFi Already Profitable

Unlike a lot of emerging fintech and technology plays, OppFi is already profitable – in fact, OppFi has been profitable for five straight years while impressively posting 50% revenue growth in each of those years.

Despite this strong performance, shares of OppFi also look inexpensive, trading at a P/E of about 13x 2021’s forward earnings estimates versus over 50x for Upstart, and an even cheaper 5x 2022’s projected EBITDA compared to over 50x for Upstart.

OppFi also looks attractive on a price to sales basis, currently trading at just over 2x sales on 2021’s revenue estimates and even less based on 2022’s projected numbers. 

Given the success it has had with its core OppLoan product, OppFi is also moving into new verticals like SalaryTap and an OppFi credit card. SalaryTap will be a lower-interest loan that is paid for directly out of the borrower’s paycheck as a payroll deduction, and the OppFi credit card will compete with the other nonprime credit cards currently on the market.

According to CEO Jared Kaplan, the average OppFi customer takes out two loans with the company, indicating that consumers are happy with their experience and willing to come back for a second loan. To this point, OppFi also enjoys a lofty Net Promoter Score of 85, indicating that the company is building some brand loyalty in a space where many customers do not always have a positive experience.

It is worth considering the possibility that satisfied customers may stay with OppFi as their credit situation improves and as the company potentially moves into more mainstream financial products. That would be similar to how SoFi (SOFI) started with younger consumers paying student loans and has since moved into new verticals, ranging from brokerage services to mortgages, as these customers grew with the company.  

To be clear, OppFi does not necessarily deserve the same valuation as Upstart at this point in time, but the gulf in valuations shows that there is plenty of runway ahead for OppFi if the company can continue to execute on its strategy.   

Catalysts for OppFI’s Growth

Some commentators view the eventual end of government stimulus spending via direct checks to consumers and enhanced unemployment benefits as a risk to OppFI and other lenders.

However, this could also present an opportunity, as these payments likely gave many of OppFi’s customers more liquidity than they previously enjoyed; receiving hundreds of dollars a week in unemployment put some potential customers on steadier financial footing and less likely to need a loan. Perhaps they were able to use the direct stimulus check to purchase a big ticket item for which they otherwise would have considered turning to a short-term personal loan.

Kyle Cerminara, President of the FG New America SPAC that took OppFi public, has actually cited the pandemic and the direct stimulus payments as a factor which has slowed OppFi’s otherwise rapid growth. 

Fintech companies focused on consumer lending seem to be receiving a new wave of attention and improved investor sentiment as a whole, thanks to Upstart’s outperformance and a wave of M&A activity in the space.

A stock like OppFi, which is operating in a similar segment, trading at an undemanding valuation, and working to expand its platform to new verticals, could be a key beneficiary as investor awareness increases and as it executes on its business plans. 

Wall Street Analysts

OppFi currently has 5 analyst ratings, with 4 analysts calling OPFI a Buy and one rating it as a Hold. The average OppFi price target is $11, representing a 35% premium to the current stock price.

Disclosure: At the time of publication, Michael Byrne did not have a position in any of the securities mentioned in this article.

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