Consumer Finance Play - BUY Recommendation!
The major indices are mixed at midday as tech stocks extended yesterday’s late-day dip due to the continued rally in Treasury yields. European stocks hit their lowest levels in three weeks overnight, as COVID-related fears continue to mount, with the euro also remaining under pressure after hitting a fresh 17-month low against the dollar yesterday. President Biden announced that the U.S., together with five other nations, will release some of its Strategic Petroleum Reserve to halt the rise in energy prices, but the price of crude oil actually surged higher in the wake of the announcement.
Stock Pick Summary:
With our portfolio looking extremely solid and the market dipping sharply, we look to open our next position in another promising company today. The company provides a proprietary, cloud-based, artificial intelligence lending platform. The platform aggregates consumer demand for loans and connects it to the network of AI-enabled bank partners. The revenue of the company is primarily comprised of fees paid by banks. It reported third-quarter earnings recently, and in our view, the company reported stellar numbers. Q3 revenue of $228 million was an improvement of close to 250% from a year ago, and the company reported a net income of $29.1 million for the quarter, against just $9.7 million for the corresponding quarter last year. However, the market was disappointed with the projections for the next quarter which did not meet the lofty (and perhaps unreasonable) street expectations.
Source: Q3 Earnings presentation
As economy gets back to the normal habits, Americans will look for credit facilities as they used to before the pandemic. And if the macroeconomic environment continues to improve from here on, we believe the company is likely to drive aggressive growth. Being a data-driven company, its success is highly dependent on its ability to maintain its already-proven credit verification model. To stay ahead of competition, the company has to feed a tremendous amount of data to its AI model, which is exactly what the company has been doing over the last four quarters. The auto-loan origination business, launched late last year, has continued to impress. It has originated more than 4,000 auto loans across 47 states, and tripled the number of auto dealers on its platform. The management is looking to launch a small dollar loan product, that may help connect millions of borrowers to its platform. That said, this a high risk investment in a potentially disruptive company which is not short of risks. Patient investors will need to digest volatility along the way for possibly a promising outcome as the thesis plays out.
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