OppFi Inc. (OPFI) is a financial technology platform that powers banks to help consumers, especially traditionally underserved borrowers, gain access to credit. Higher rates of loan approval at significantly lower interest rates, compared to traditional last-resort lenders, is the selling point of the company.
Recently, Needham analysts, led by Mayank Tandon, delved deep into the company’s fundamentals, near-term and long-term prospects, and competitive moats. A few of the key observations that they made have been discussed below.
OppFi’s prime product, an 11-month installment loan of $1,500 on average, is typically offered for events like car repairs and unexpected medical bills. The annual percentage rate (APR), or simply, the interest rate on this loan is 59%-160% as compared with the 300%-400% APRs of payday loans, making it a more attractive option. Tandon believes that OppFi, which currently holds a market share of less than 1%, has room to expand the TAM (total addressable market) further, based on its new product roster. (See OppFi stock chart on TipRanks)
Notably, the company has ditched the “marketplace” model for a more unique approach of holding loans on its balance sheet. This has allowed OppFi to have healthy unit economics, leading to consistent profitability despite high growth investments. This gives OppFi the powerful combination of a rapidly growing business and sustainable profitability.
OppFi leverages AI to automate its credit decisions, which has helped the company cut its cost per funded loan by almost 42% between 2017 and 2020. The company significantly reduced direct mail campaigns and increasingly leveraged lead generation platforms like LendingTree, Credit Karma, and Credit Sesame.
“We believe managing customer acquisition costs will be key for OPFI to execute on its growth strategy without compromising profitability,” noted Tandon.
Lastly, the analyst noted that the company is trading at an attractive valuation as compared to its peers. He believes that the shares are expected to go up as OppFi carries out its growth plans while keeping credit quality intact.
With this, Tandon initiated coverage of OppFi with a Buy rating and a price target of $10, implying an upside of 52.9%. This reflects that the analyst is quite optimistic about the company’s prospects, which are positive despite the credit and regulatory risks related to subprime lending.
Overall, the stock has a Strong Buy consensus based on 4 Buys. The average OppFi price target of $12.50 implies 99.4% upside potential from current levels.
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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.
