At heart I’m prone to contrarian bets on companies that could get under-valued. I believe that is what PGY is today. The stock is down 67% today at the time of writing. It’s a SPAC out of Israel that is very much like Upstart, a company you may be more familiar with.
The company develops and implements proprietary artificial intelligence technology and related software solutions to assist partners to originate loans and other assets. Its partners include high-growth financial technology companies, incumbent financial institutions, auto finance providers, and brokers. It’s Tel Aviv HQ to me brings it added credibility.
Per capita, that is the most innovation city in the world in terms of technology startups.
While being a SPAC and in these macro economic condition dooms you to being a penny stock, I believe in the company’s value proposition long-term. Just look at the stock volatility of Upstart, UPST if you aren’t sure about what I am saying.
Upstart and Pagaya, two of the best growth stocks, both offer artificial intelligence (AI)-based credit scoring systems to expand credit for borrowers without compromising risk to lenders. This is something that will be pretty important in 2023.
It’s my belief that Pagaya is better diversified than Upstart.
Whereas Upstart is focused on personal and car loans, with plans to enter mortgages next year and then other areas, Pagaya already has its finger in many pies. It counts Visa, one of the best value stocks, as one of its credit card partners, and it works with personal loans, auto loans, credit cards, and real estate.
Pagaya went public in June through a special purpose acquisition company (SPAC). Like most SPACs with high valuations, Pagaya slumped after it started trading independently, with most tech and fintech valuations way down this year. A clause that allows employs to sell share has apparently kicked in resulting in the epic slide we see today. Not surprising at the onset of a global recession and bearish volatility.
Pagaya says it boasts a differentiated funding model, saying it raises cash even before it approves funding. That was an issue for Upstart in the first quarter, when it took some loans to hold on its balance sheet when funding began to dry up. It’s an advantage for Pagaya, according to the clickbait Motley Fool.
Pagaya has around 800 employees and was founded in 2016 and is headquartered in Tel Aviv, Israel.
“It will be interesting to observe the stock’s reaction once the VWAP clause is fulfilled, and it will be even more intriguing to see PGY’s reaction once the lock-up period is over. The expected behavior would be volatile price action favoring the downside, as stockholders like early investors and employees would like to “cash out” as soon as possible.
So today September 20th, is its day of reckoning. If the stock goes down far enough, I may have to take a closer look at its business model.
Pagaya’s growing AI network connects investors, partners and their customers, seamlessly integrated via proprietary API. Using sophisticated AI-driven credit and analysis technology, we enable precise, real-time customer credit evaluation. Lenders partnering with them can discover and approve new customers who meet their lending criteria, building brand affinity without taking on undue risk.
I like the intersection of credit evaluation and A.I. Upstart will be easily over-valued, but Pagaya may reach a stock price in Excel point that begins to actually make some sense even in this weird times.
The company is deeply unprofitable. Revenue growth in 2021 was decent. You can read about their 2Q Earnings here.
Their business model is a B2B2C platform
I find their business model has the potential to scale fairly well.
The Company develops data science, machine learning and AI technology (Artificial Intelligence) analytics, enabling accurate, real-time customer credit assessments.
Their current market cap is around $1.7 billion, however below one billion it looks like an interesting company.
2Q’22 Network Volume and Total Revenue grow 79% and 83%, respectively, in the second quarter, Adjusted EBITDA of $4.9 million
The are trying to build an AI ecosystem designed to deliver better outcomes than traditional models. It’s early days.
I am fundamentally a believer in data-driven decision making.
That their solution is real-time, fully automated and data-rich AI interests me. Their system could over time get better.
I usually stick very far clear of SPACs, but companies like PGY and IONQ make me think a bit harder than usual.
This is because I’m a believer in the impact of A.I. on FinTech and Quantum computing on the future of the Cloud (as in the case of IonQ).
The stock price is down 76% YTD, talk about coming down to Earth.
The stock, which now trades at $2.38 per share, had risen all the way to about $30 at its height.
It’s after the hype that I’m typically a buy the dip potential buyer.
Fundamentals of the Growth Story
Pagaya has raised $571 million to date, they are a big bet on the future of A.I. in credit checking.
At least what they are trying to do deeply makes sense to me.
What do you think?
Since they can help companies find new customers they also have a unique value proposition that makes a lot of sense. Company’s customers are lending companies that, by connecting to the AI Pagaya network, have the opportunity to discover and approve new customers that meet their credit criteria. That is, they immediately have valuable data on their new potential customers.
Check out their investor deck if you are curious. I think the stock price can fall some more and we need to establish more baselines on its actual price before taking on any risk. It’s a relatively new SPAC to put on your watchlist, with a fair bit of potential as an “A.I.” type penny stock. In general and from experience, I have a higher trust in Israeli based companies even if this is one of the worst times for FinTech companies in recent history.
If you would like to learn more about other similar stocks, check out the list below: