OppFi: A Real Fintech Trading Like A Value Stock, 50% Plus Upside (NYSE:OPFI)
Investment Thesis
OppFi (OPFI) is a mispriced, under the radar, high growth fintech trading like a value stock. Wall Street misperceives OPFI as merely a fully-valued plain vanilla subprime lender, rather than an undervalued fintech innovator. In our view, OPFI differs from other nonprime lenders with its digital platform, automated underwriting powered by artificial intelligence algorithms, lower comparative interest rates, and longer payment terms with amortization, which all enable the company to generate substantially higher origination volume growth. OPFI is distinguished from other fintech players, given its higher profitability margins and strategic plan to broaden its product portfolio for the underbanked everyday consumer. Therefore, we anticipate OPFI will experience substantial valuation multiple expansion over the next 12 months (and beyond). Our $12 price target represents more than 50% upside.
Company Overview
OppFi is a financial technology platform that partners with banks to primarily provide subprime, underbanked consumers access to credit. OPFI built a digital, artificial intelligence driven platform based on real-time data analytics and a proprietary scoring algorithm, enabling automated underwriting.
Current products include OppLoans, SalaryTap, and the OppFi Card. OppLoans provide installment loans to consumers who otherwise would not qualify for credit. SalaryTap offers payroll-linked credit at prime pricing to non-prime consumers. The OppFi Card provides OPFI’s best customers with a traditional credit card.
OppFi became a publicly-traded company through a SPAC transaction, completing a business combination with FG New America Acquisition Corporation in .
Solid Management Team, FinTech Experience
In our view, management team strength and credibility are among the most important factors when considering a stock. To this end, we think the OPFI senior leadership team is well-experienced, innovative, and capable of capitalizing on many strategic growth opportunities.
Jared Kaplan joined as CEO in 2015, and his prior experience includes co-founding Insureon, leading financial technology investing at Accretive, and investment banking at Goldman Sachs. This past summer, Neville are payday loans legal in Arkansas Crawley came aboard as president, after serving almost 4 years as CEO of Kiva Microfunds, a global fintech non-profit that facilitates loans to low-income entrepreneurs globally. Shiven Shah has been CFO for the past 4 years and prior to OPFI served in various finance roles at ABN Amro, Peak6, and Citigroup.
The Misperceived Underbanked Market
In our view, investors continue to misunderstand the significant market opportunity for which OppFi competes and in doing so marginalize the company as merely another subprime or payday lender. Instead, OPFI seeks to be a transformational leader for underbanked consumers, helping them rebuild credit and gain financial flexibility.
The reality is a significant portion of U.S. consumers possess minimal savings and/or lack access to credit. According to a study by GoBankingRates, 40% of Americans have less than $400 in savings and 57% less than $1,000. In addition, according to research by LendingClub (LC) and PYMNTS, 54% of U.S. consumers, representing 125 million Americans, live paycheck-to-paycheck with 21% struggling to pay bills. Figures in both of these reports reflect a time when pandemic-induced federal stimulus funds were being distributed and are therefore likely even worse now. During , the Federal Reserve Bank of New York published an extensive study titled “Unequal Access to Credit: The Hidden Impact of Credit Constraints” and concluded approximately 60 million Americans lack access to “credit of choice,” which means that they are rejected by traditional banks and lenders due to poor credit scores or no credit history.
In 2019, OppFi conducted a proprietary survey of its customers that found 54% experience financial emergencies multiple times per year, 72% were denied a line of credit or bank product, and 51% were denied a personal loan in the past 12 months.
