The fintech sector continues to heat up, yet Pagaya Technologies (PGY) hasn’t kept up with the pace. The stock is down roughly 40% year-to-date despite beating revenue expectations for the most recent quarter and projecting solid growth for the future. After surprising the markets with a $330 million capital raise in March and diluting shareholders, market participants are now exhibiting unease, driving the share price down 16% in the past week.
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This was followed by the company’s recent announcement of a debt refinancing plan (which holds the potential for further shareholder dilution). The company declared its steps to address the challenges in market communications by bringing in industry veteran Josh Fagen as Head of Investor Relations and COO of Finance to help steer investor relations and overall financial performance.
Despite its stock’s downward trend over the last year, Pagaya’s robust AI-powered network and impressive financials make analysts confident in its potential and set high price targets. If the company can change the market’s perception, it could catalyze the share price and unlock a rewarding opportunity for value-oriented investors who look past recent performance to see the firm’s underlying potential.
Pagaya Takes Steps to Shore Up Its Investor Relations
Pagaya is a technology company specializing in product solutions for the financial sector and utilizes proprietary artificial intelligence to aid financial institutions and investors in loan origination and asset management. The company collaborates with various partners, such as fintech start-ups, established banks, auto finance providers, and residential real estate service companies.
The company recently bolstered its financial team with the appointment of Josh Fagen as Head of Investor Relations and COO of Finance. With over two decades of experience in strategic finance, Fagen’s immediate challenge is to manage investor and analyst relations while helping to guide the company’s strategic financial initiatives. Fagen is joining Pagaya from SoFi (SOFI), where he played a key role in the company’s significant milestones, including taking it public and managing investor relations across multiple units.
Pagaya also recently closed its second AAA-rated Asset-Backed Securitization of 2024, with $4.4 billion raised across all transactions. This latest transaction saw participation from a mix of repeat and new investors, reflecting the ongoing robust investor demand for Pagaya’s AI-enhanced consumer credit assets. With over $24 billion raised since 2018, Pagaya has solidified its reputation as the leading issuer of personal loan ABS in the U.S.
Pagaya’s Recent Financial Results & Outlook
The company recently reported stronger-than-expected Q2 2024 results. Revenue of $250.34 million surpassed expectations of $239.25 million while marking a 28% year-over-year increase. This was driven by the company’s network volume increasing 19% year-over-year to $2.3 billion. Adjusted EBITDA stood at $50 million, while adjusted net income reached $7 million, producing an EPS of -$1.04, missing predictions of -$0.01.
After the positive second-quarter results, PGY’s management has issued forward guidance. For 3Q24, they anticipate a network volume between $2.3 billion and $2.5 billion, revenue ranging from $250 million to $260 million, and adjusted EBITDA between $50 million and $60 million. For 2024, the projected network volume is expected to be between $9.25 billion and $10.25 billion, revenue between $975 million and $1,050 million, and adjusted EBITDA forecast to be between $180 million and $210 million.
Pagaya recently announced that it has priced its private offering of $140 million exchangeable senior notes due 2029. Set to close on October 1, 2024, the notes, which accrue interest at 6.125% per annum, are intended to repay high-cost debt and reduce interest expenses. Pagaya will fully guarantee these notes, and they can be exchanged for cash, Class A ordinary shares of Pagaya, or a mixture of both.
Furthermore, it extends an option to initial purchasers to buy, within 13 days, an extra amount of up to $20 million principal amount of notes. This move to restructure the company’s debt could save $30 million in annual interest expenses, though it could further dilute existing shareholders.
What Is the Price Target for PGY Stock?
The stock has been incredibly volatile, sporting a beta of 3.24, climbing to $360 a share at one point, only to decline over 91% in the past three years. It trades near the bottom of its 52-week price range of $8.56 – $20.50, demonstrating negative price momentum by trading below its 20-day (12).58) and 50-day (12.83) moving averages. With a P/S ratio of 0.74, the stock trades at a deep relative value to peers in the Application Software industry, with an average P/S ratio of 9.4x.
Pagaya Technologies is rated a Strong Buy based on the five analysts’ recommendations and price targets. The average price target for PGY stock is $20.50, representing a potential upside of 105.82% from current levels.
Final Thoughts on PGY
Despite a tough year for its stock, Pagaya Technologies demonstrates compelling potential for growth. The recent addition of an IR veteran to its team and a cost-saving debt refinancing plan indicates a strategic focus on making efficient financial decisions and improving investor relations. The market’s current apprehension, reflected in the stock’s significant volatility and below-average P/S ratio, contrasts sharply with the positive potential highlighted by industry analysts. If the company can shift market perception, it could ignite a considerable surge in share price, revealing an undervalued opportunity for savvy investors.
