Is LendingClub a Buy Under $30?

Leading digital marketplace bank LendingClub Corporation (LC) in San Francisco operates through its subsidiaries LendingClub Bank and National Association (the Bank), providing a range of financial products and services in the U.S. through a technology-driven platform. The COVID-19 pandemic and subsequent lockdowns have accelerated fintech solution adoption worldwide. The major shift toward contactless payment and other digital payment methods helped LC grow considerably. Fueled by the industry tailwinds, the stock skyrocketed earlier this year. LC shares have gained 202% in price over the past year and 142% year-to-date to close yesterday’s trading session at $25.55.

The company recently announced that its auto refinance loans now cover 94% of the U.S. population, and borrowers have saved an average of $4,000 over the lives of their loans. “Auto is a key step in our vision to create a holistic customer experience that seamlessly integrates saving opportunities for our members across our product offerings,” Todd Denbo, SVP of Auto at LendingClub Bank, explained. Over the past year, LC’s growth trajectory has been impressive, with its new product launches and portfolio expansion. LC also reported solid revenue and earnings growth in its last reported quarter and raised its full-year guidance. 

However, the stock has slumped 31.1% over the past month and is currently trading above its 200-day moving average but below its 50-day moving average. Recently, Federal Reserve Chairman Jerome Powell indicated plans to tighten the central bank’s monetary policy to combat rising inflation. Powell, who had stated that inflation is “transitory,” told U.S. lawmakers that “it’s probably a good time to retire that word.” However, analysts warn that raising interest rates up may lead to an economic slowdown. “The Fed’s new policy is highly nonlinear, creating a dangerous endgame,” Mark Cabana, Bank of America’s head of U.S. rates strategy, said in a note. So, the uncertainty tied to the policy changes could hinder LC’s near-term prospects.

Here is what could shape LC’s performance in the near term:

Stretched Valuation

In terms of forward P/E, LC is currently trading at 190.97x, which is 1,682.3% higher than the 10.71x industry average. Also, its 14.25 forward EV/EBITDA ratio is 26.6% higher than the 11.25 industry average. And its  2.91x forward Price/Book is 139.3% higher than the 1.22x industry average.

Mixed Profitability

LC’s 102.25% gross profit margin is 62% higher than the 63.13% industry average. Also, its 5.33% CAPEX/Sales is 228% higher than the 1.63% industry average.

Furthermore, LC’s negative 4.83% and negative 0.78% respective ROE and ROA compare with the 12.73% and 1.36% industry averages. Also,  its EBITDA and EBIT margins are 37% and 50.8% lower than the industry averages, respectively.

Stable Rise in Financials

LC’s total net revenues increased 246.5% year-over-year to $246.17 million in its fiscal third quarter, ended September 30. Its consolidated net income grew 179.2% from its year-ago value to $27.19 million, while its EPS increased 168.4% year-over-year to $0.26. Its trailing-12-months cash flow from operations came in at $171.36 million, up 24.7% from the $137.37 million industry average.

POWR Ratings Reflect Uncertain Prospects

LC has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Quality, which is consistent with its mixed profitability.

LC has an F grade for Stability. Its 2.13 beta  justifies this grade.

Of the 55 stocks in the Consumer Financial Services industry, LC is ranked #43.

Beyond what I have stated above, one  can view LC’s grades for Value, Growth, Momentum, and Sentiment here.

View the top-rated stocks in the Consumer Financial Services industry here.

Bottom Line

LC experienced significant growth over the past year due to its unique product and service launches and favorable industry trends. However, analysts expect its EPS to decline 8.6% per annum over the next five years. Also, the stock is currently trading at a lofty valuation and has a high beta, indicating volatility. Moreover, considering its negative ROE, we think it could be wise to wait for a better entry point in the stock.

How Does LendingClub Corporation (LC) Stack Up Against its Peers?

While LC has an overall POWR Rating of C, one might consider looking at its industry peers, Regional Management Corp. (RM) and Atlanticus Holdings Corporation (ATLC), which have an A (Strong Buy) rating.

LC shares rose $0.85 (+3.33%) in premarket trading Thursday. Year-to-date, LC has gained 141.95%, versus a 26.76% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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