Omnichannel lease-purchase platform Katapult Holdings, Inc. (KPLT), which is based in New York City, made its stock market debut on June 10, 2021, merging with special purpose acquisition company FinServ Acquisition Corp. And last month, the company rolled out its direct apply feature to customers. However, the stock’s price has declined 55.4% since its stock market debut, to close yesterday’s trading session at $6.48.

Furthermore, the shares have lost 31.1% in price over the past month and 53.6% over the past three months, and KPLT was unable to provide guidance for its upcoming quarters due to uncertain macro trends. In addition, its losses widened in the second quarter. So, KPLT’s near-term prospects look bleak.

Here are the factors that we think could influence KPLT’s performance in the coming months:

Ongoing Investigations

Several law firms have launched an investigation into  KPLT and certain of its top executives for potential violations of the Securities Exchange Act of 1934. It is alleged that the company made materially false and misleading statements regarding its business, operations, and prospects. For example, it allegedly made false statements or did not disclose that it was experiencing declining e-commerce retail sales and consumer spending.

Top Line Growth Doesn’t Translate into Bottom Line Improvement

For the second quarter, ended June 30, 2021, KPLT’s revenue surged 27.6% year-over-year to $77.47 million. The company’s total assets increased 35.9% sequentially to $190.04 million. However, its total operating expenses for the quarter increased 216.2% year-over-year to $30.50 million. In comparison, its loss from operations came in at $8.95 million, compared to  $8.82 million in operating income in the year-ago period. Its adjusted net income came in at $1.54 million, representing a 70.4% year-over-year decrease.

Lofty Valuation

In terms of forward EV/EBIT, KPLT’s 61.89x is 398.2% higher than the 12.42x industry average. Likewise, its 15.80x forward non-GAAP P/E is 44.6% higher than the 10.93x industry average. Moreover, the stock’s 27.02x EV/EBITDA is 138.6% higher than the 11.33x industry average.

POWR Ratings Reflect Bleak Prospects

KPLT has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. KPLT has a D grade for Quality. This is justified given its 4.56% trailing-12-month net income margin compared to the 29.79% industry average.

The stock also has a D grade for Value, consistent with higher-than-industry valuation ratios. Moreover, KPLT has an F grade for Stability.

In addition to the POWR Rating grades we’ve just highlighted, we’ve also rated KPLT for Growth, Sentiment, and Momentum. Click here to get all the KPLT ratings.

KPLT is ranked #50 of 51 stocks in the Consumer Financial Services industry.

Bottom Line

KPLT is an emerging e-commerce focused fintech company. However, several investigations of the company are currently ongoing. In addition, it released disappointing earnings results in the second quarter. Because  the stock looks overvalued at the current price level, we think it’s best avoided now.

How Does Katapult (KPLT) Stack Up Against its Peers?

While KPLT has an overall POWR Rating of D, one  might want to consider investing in consumer financial services stocks with an A (Strong Buy) or B (Buy) rating, such as Regional Management Corp. (RM), OneMain Holdings, Inc (OMF), and CURO Group Holdings Corp. (CURO).

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