Stocks that operate in bitcoin’s orbit have a tendency to follow the leading cryptocurrency’s price fluctuations. While that is a boon when bitcoin is charging ahead, the opposite holds true when bitcoin’s price goes through one of its prolonged down periods.
H.C Wainwright’s Scott Buck says shares of Mogo (MOGO) have fallen victim to this phenomenon, but only because of a wrong read through of the Canadian fintech’s value proposition.
“In recent weeks, shares of MOGO have traded much more consistently with crypto-currencies than with leading financial technology companies,” the 5-star analyst said. “We believe this reflects some investor misunderstanding of the business following recent investments in crypto businesses including Canadian crypto exchange Coinsquare and Canadian crypto custodian Tetra Trust Company.”
While Buck notes these “minority” investments will pay off should cryptocurrencies regain momentum, the company’s business is almost “entirely driven” by more traditional digital bank services. Fees from debit card use, payment processing, lending, and referral income are the main revenue generators.
In fact, the company’s exposure to crypto only makes up around 5% of total revenue, suggesting to Buck “very little, if any, impact from the recent decline in value of many popular crypto-currencies, including Bitcoin.”
So now, despite boasting similar operations and a “similarly dominant” market position – although in the smaller Canadian market – shares of MOGO trade “at a meaningful discount” to U.S. financial technology peers. For instance, the stock has an EV/revenue multiple of approximately 7.1x 2022 consensus estimates vs. its fintech peer group’s average of nearly 18.0x.
Buck believes that when the company reports 2Q21 earnings in mid-August, the “dislocation” between operating results and share price will become more apparent. Investors should therefore “get involved ahead of more positive results.”
“As the company continues to demonstrate its ability to grow revenue, irrespective of the trading direction of major crypto-currencies, we believe MOGO shares should see its valuation move towards peer levels,” the analyst summed up.
Indeed, going by Buck’s $16 price target, the shares are currently undervalued by a huge 164%. No need to add, Buck’s rating is a Buy. (To watch Buck’s track record, click here)
While not at quite such a massive disconnect, the rest of the Street thinks Mogo stock is trading far below its fair price. The forecast calls for one-year gains of 108%, given the average target stands at $12.58. All recent reviews are positive too; the stock’s Strong Buy consensus rating is based on a unanimous 5 Buys. (See Mogo stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
