In this piece, I evaluated two online lending stocks, LendingClub (NYSE:LC) and LendingTree (NASDAQ:TREE), using TipRanks’ comparison tool to determine which is better.
LendingClub is a financial services company that touts itself as “the only online marketplace bank at scale” and provides access to a wide range of financial products and services.
LendingTree is an online lending marketplace that connects potential borrowers with multiple lenders, enabling them to find the best terms for loans, credit cards, and other financial products.
Both stocks plummeted in 2022, with LendingClub tumbling 22% and LendingTree tanking 54%. However, LendingClub has partially recovered, rallying 14% year-to-date, although LendingTree is down 3.5% this year.
LendingClub (NYSE:LC)
Based on fundamentals, LendingClub looks like a great play in the diversified financials space, especially considering its book value per share of $11.17, which makes it look a bit undervalued at its current price of around $9.60. However, with a key Federal Reserve official calling for two more interest rate hikes this year, a wait-and-see approach might be best for LendingClub, suggesting a neutral view might be appropriate.
If LendingClub continues on its current trajectory, then it looks like an excellent company. Its total revenues rose 92% in 2021 and 41% in 2022 despite the rapidly soaring interest rates last year. LendingClub is also growing its net income, which rose to $289.7 million in 2022 (from $18.6 million in 2021), although it ticked down to $262.5 million for the last 12 months.
Its balance sheet is also in excellent shape, with over $1 billion in cash and short-term investments at the end of 2022, rising to $1.6 billion for the last 12 months after the last earnings report. LendingClub’s debt/equity ratio of 10.4% for the last 12 months also demonstrates the company’s solid long-term financial position.
In short, it’s hard to see why the Street hates this stock so much. It may have more to do with the current macroeconomic conditions and talk of a recession rather than anything about LendingClub in particular.
The company is trading at a deep discount to the diversified financials industry, which is trading at a price-to-earnings (P/E) ratio of 67.9 and a price-to-sales (P/S) ratio of 3.5 versus its three-year averages of 27.9 and 2.3, respectively. Meanwhile, LendingClub is trading at a P/S multiple of 0.8 versus its five-year mean of 1.7 and a P/E of 3.7 (its five-year mean P/E is negative because the company was unprofitable until early 2022.
Investors who can stomach the near-term risk may find LendingClub to be a deal, but it may not recover until the Fed is done hiking interest rates and the economy and consumers are in better shape.
What is the Price Target for LC Stock?
LendingClub has a Strong Buy consensus rating based on five Buys, one Hold, and zero Sell ratings assigned over the last three months. At $12.08, the average LendingClub stock price target implies upside potential of 26.6%.
LendingTree (NASDAQ:TREE)
LendingTree is an entirely different story. While LendingClub’s financial trends are positive, LendingTree’s are nearly all negative, suggesting a bearish view might be appropriate.
For one thing, the company isn’t profitable despite having a gross profit margin of over 90%. LendingTree’s revenues are also somewhat choppy, bouncing from $910 million in 2020 to $1.1 billion in 2021 and then down to $985 million in 2022 and $902.3 million for the last 12 months. In years when the company was profitable, it didn’t even crack $100 million in net income, and it recorded net losses of $188 million in 2022 and $163.7 million for the last 12 months.
With only $150.1 million in cash and short-term equivalents for the last 12 months, LendingTree is on shaky ground, and its book value per share of around $18 is lower than its current share price. Additionally, its debt/equity ratio is nearly triple that of LendingClub. While LendingTree’s P/S is only 0.3, its fundamentals show why it deserves such a low valuation.
What is the Price Target for TREE Stock?
LendingTree has a Moderate Buy consensus rating based on four Buys, two Holds, and zero Sell ratings assigned over the last three months. At $23.33, the average LendingTree stock price target implies upside potential of 8.4%.
Conclusion: Neutral on LC, Bearish on TREE
Both stocks fell yesterday since Dallas Fed President Lori Logan called for two more rate hikes this year. As a result, this likely isn’t a great time to invest in lenders, although LendingClub looks like a great potential long-term play worth watching for a reversal in stock-price momentum.
