Technology stocks continue to dominate returns despite recent volatility, with the NASDAQ index climbing over 18.5% year-to-date. Under that umbrella are fintech companies focused on innovations within financial services as a technological bridge to the future of banking and finance. Firms like Pagaya Technologies (PGY) are at the forefront of this new wave, which is trying to revolutionize the lending industry by allowing real-time data-driven credit assessments. However, the stock is highly volatile and not suited for faint-hearted investors.
The firm had an impressive Q1’24 performance and strong revenue growth over the past three years. However, it is still considered a high-risk, high-reward stock.
Pagaya Is Taking Steps to Boost Profitability
Pagaya is among the new breed of fintech companies that utilize AI, machine learning techniques, and big data analytics to provide institutional lenders with a more accurate method of reviewing credit applications. The company collaborates with various financial institutions, such as banks, pension funds, and insurance companies, in applying data-driven decision-making to enhance people’s credit accessibility.
Pagaya handles billions of dollars in loans across various sectors, such as personal loans, auto financing, credit cards, and real estate. Its AI-enabled technology analyzes consumer data to estimate risk and reward. With its dual-sided network, Pagaya facilitates an uninterrupted flow of consumer credit and real estate assets to investors. The firm has demonstrated commitment to its expansion strategy by introducing a POS business in partnership with the U.S. Bank. It is set to go live on their network in the second half of 2024.
In addition to executing strategies to boost profitability and achieve a positive net cash flow, the company is streamlining its operations and accelerating key growth areas. As part of these initiatives, Pagaya anticipates annualized gross cost savings of approximately $25 million. Consequently, the company has revised its 2024 outlook for Adjusted EBITDA up by $10 million to $160-$200 million.
Pagaya’s Recent Financial Results & Outlook
Pagaya Technologies outperformed analysts’ estimates for its first quarter 2024 earnings report. Total revenue of $245.28 million beat estimates of $225.96 million, driven by significant 31% year-over-year growth in network volume, surpassing its outlook by reaching $2.42 billion. Another record was set in revenue from fees less production costs (FRLPC), which reached $92 million, an 84% year-over-year increase.
This increased its Fee Revenue Less Production Costs (FRLPC) margin to 3.8%, a 109 basis points improvement from the previous year. Adjusted EBITDA for the quarter exceeded the projected $32 million to $38 million, reaching $40 million. Despite a net loss of $21 million being reported, this was an improvement from the prior year period with a $40 million decrease in losses. Earnings per share of $0.20 beat consensus expectations of -$0.04.
In a bid to strengthen its capital position, Pagaya recently raised $330 million from corporate debt and equity raises.
For the second quarter of 2024, management is projecting network volume to fall between $2.2 billion and $2.4 billion. Total revenue and other income are anticipated to be $235 million to $245 million. Adjusted EBITDA is expected to be between $40 million and $45 million. As for the full year 2024, the network volume is anticipated to be between $9.0 billion and $10.5 billion. Total revenue and other income are projected to range from $925 million to $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 dropped 30% immediately after the company surprised the markets with a $330 million capital raise in March. Although, it has recovered much of that lost ground, climbing 48% since. Shares trade at the lower end of the 52-week price range of $8.56 – $33.96 and show ongoing positive price momentum, trading above the 20-day (13.45) and 50-day (12.72) moving averages.
Analysts covering the firm have taken a cautiously optimistic view of the stock. For example, Keefe Bruyette analyst Sanjay Sakhrani, a five-star analyst according to Tipranks’ ratings, recently initiated coverage of Pagaya with an Outperform rating and $23 price target for the shares, noting the firm’s strong runway for growth.
Overall, Pagaya Technologies is rated a Moderate Buy based on seven analysts’ recommendations and recently assigned price targets. The average price target for PGY stock is $23.17, representing a potential upside of 53.04% from current levels.
Bottom Line on Pagaya
Pagaya has exhibited encouraging financial results and an optimistic outlook for further upside. Investors interested in this compelling, high-risk, high-reward investment opportunity might want to take advantage of the recent strong growth trajectory and ride the momentum train before the share price rebounds to higher levels.
