OppFi (OPFI) is a great option for investors who regret not having seen Upstart (NASDAQ:) 9900% increase since December last year. OppFi shares have fallen about 20% in the same time period as Upstart, which has surged to $25.5 billion in market capital.

OppFi uses AI, and is experiencing rapid growth. Upstart is a cloud-based platform for lending that utilizes artificial intelligence to make consumer loans. It hasn’t yet enjoyed the same investor attention or share price appreciation, indicating that it could present a potential buying opportunity.

OppFi was recently made public by a combination of FG New American Acquisition Corp. and its shares have fallen below the $10 mark at which it went public. Shares of OppFi  dropped from an all-time high of $11.60 in February  down to a low of $6.01 before recently rebounding into the $7-9 range, and settling at $8.15 at time of writing. (See OppFi stock charts on TipRanks)

Like Upstart, OppFi offers consumer loans, but the key difference is that OppFi places a particular focus on subprime and nonprime borrowers. OppFi uses artificial intelligence to provide loans to people who cannot access traditional financial products or are otherwise underserved.

This stock is a strong buy.

OppFi Already Profitable

Unlike a lot of emerging fintech and technology plays, OppFi is already profitable – in fact, OppFi has been profitable for five straight years while impressively posting 50% revenue growth in each of those years.

Despite this strong performance, shares of OppFi also look inexpensive, trading at a P/E of about 13x 2021’s forward earnings estimates versus over 50x for Upstart, and an even cheaper 5x 2022’s projected EBITDA compared to over 50x for Upstart.

OppFi also looks attractive on a price to sales basis, currently trading at just over 2x sales on 2021’s revenue estimates and even less based on 2022’s projected numbers. 

OppFi has been a success with the core OppLoan product. Now, it is expanding into other verticals such as SalaryTap or an OppFi Credit Card. SalaryTap will be a lower-interest loan that is paid for directly out of the borrower’s paycheck as a payroll deduction, and the OppFi credit card will compete with the other nonprime credit cards currently on the market.

Jared Kaplan CEO, OppFi, stated that the average OppFi customer has taken out two loans. This indicates that customers are satisfied with their service and will return for another loan. OppFi’s Net Promoter Score is 85. This indicates the company has built brand loyalty in a market where most customers have negative experiences.

You should consider the possibility of satisfied customers staying with OppFi as they improve their credit and the company expands into mainstream financial products. This would mirror the way SoFi (SOFI), which started out with young consumers who were paying student loans, and then expanded into other verticals such as brokerage services or mortgages. As these customers gained trust in the company, it was similar.  

Although OppFi may not be worthy of the same valuation as Upstart right now, it is clear that the gap between valuations suggests there are plenty more runway opportunities for OppFi, if the company continues to implement its strategy.   

Catalysts for OppFI’s Growth

Some commentators view the eventual end of government stimulus spending via direct checks to consumers and enhanced unemployment benefits as a risk to OppFI and other lenders.

However, this could also present an opportunity, as these payments likely gave many of OppFi’s customers more liquidity than they previously enjoyed; receiving hundreds of dollars a week in unemployment put some potential customers on steadier financial footing and less likely to need a loan. They may have been able to buy a large-ticket item with the help of the direct stimulus checks, which is something they might not have thought about if they had to turn to a personal loan.

Kyle Cerminara, President of the FG New America SPAC that took OppFi public, has actually cited the pandemic and the direct stimulus payments as a factor which has slowed OppFi’s otherwise rapid growth. 

Fintech companies focused on consumer lending seem to be receiving a new wave of attention and improved investor sentiment as a whole, thanks to Upstart’s outperformance and a wave of M&A activity in the space.

OppFi is a stock that operates in the same segment and trades at a low valuation. It could benefit from increased investor awareness and its plans to expand into new sectors. 

Wall Street Analysts

OppFi currently has 5 analyst ratings, with 4 analysts calling OPFI a Buy and one rating it as a Hold. OppFi has an average target price of $11, which is 35% more than current stock prices.

Disclosure: Michael Byrne didn’t hold any positions in the securities discussed in this article at the time it was published.

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