Pagaya Technologies (NASDAQ:PGY), a fintech consumer-lending platform, has faced significant setbacks in its stock value in recent trading days. The company’s stock value decreased by over 30% following the issuance of approximately $95 million in stock at a drastically discounted price. This unexpected stock sale startled market participants and caused concerns that it signaled a potential need for cash by the company. However, the current selloff could present a window for opportunistic investors to jump on shares of PGY at a discount to fair value.
Pagaya: Leveraging AI-Powered Technology
Pagaya stands out as one of the companies using cutting-edge machine learning and AI to build new business models and disrupt stale industries. Using AI-powered technology, the company meticulously analyzes consumer data to assess risk and reward while handling billions of dollars in loans across diverse sectors, such as personal loans, automotive financing, credit cards, and real estate.
Perhaps even more eye-catching is its dual-sided network, which facilitates the continuous flow of consumer credit and real estate assets to investors. The company has already become the number one personal loan ABS issuer by issuance size, with over $5 billion in assets transacted in 2023. Due to its scale, efficiency, and innovative structuring, the company continues to see growing investor demand, with the last four deals oversubscribed by an average of 2x.
PGY in the News
Pagaya recently executed a 12-1 reverse stock split to boost the stock’s appeal to the U.S. investor base and amplify its chances of being included in prominent U.S. equity indices. Immediately on the heels of this maneuver, the company announced an unexpected secondary stock offering at a price that represented a significant discount.
The timing of the move and its unexpected nature prompted fears that it was driven by the firm’s necessity to raise capital suddenly despite having just closed a $290 million credit facility with BlackRock in February.
The market is a forward-looking, forward-pricing mechanism and can react negatively to sudden, unexpected shifts or events. PGY shares lost a third of their value in the following five trading days.
Where PGY Stock Stands Now
PGY shares have experienced a bit of a bounce the past few days, though they are still trading at the bottom of their 52-week range of $9.07-$33.96. The past few “up” days aren’t enough yet to show a turn in price momentum, and the stock is bearishly trading below the 20-day (15.36) and 50-day (15.51) moving averages.
However, with the recent price drop, PGY stock now trades in relatively undervalued territory. Its price-to-sales ratio of 0.83x is well below the Software – Infrastructure industry average of 9.5x and the stock’s own historic average of 3.9x.
What is the Price Prediction for PGY?
Analysts covering Pagaya stock had been bullish leading up to the recent bout of financial engineering. Since then, Wedbush analyst David Chiaverini has lowered the price target on the stock from $18 to $11.50 while maintaining a Hold rating. He cites the meaningful discount built into the secondary offering and unanswered questions about its necessity. I expect more downward price target revisions to be forthcoming.
PGY is currently listed as a Moderate Buy based on three analysts’ stock ratings in the past three months. The PGY stock price target of $37.83 represents an upside potential of 258.2% from current levels.
Final Thoughts
Pagaya closed out 2023 with substantial financial numbers that exceeded expectations across several metrics. Management has given guidance for a continuation of that growth trajectory, and there are wide expectations that the company will turn profitable in 2024. While surprising, the recent financial engineering maneuvers don’t seem to have changed the underlying attractiveness of the long-term investment case for Pagaya.
The company has announced a “fireside chat” with the CEO on March 26th. This may go a long way to assuage investors’ fears and perhaps catalyze further upward momentum for the shares, making this a brief window for fintech investors to lock in a good value trade on PGY.
