1 Small-Cap AI Growth Stock With 79% Upside Potential

Pagaya Technologies Ltd. (PGY) is a financial technology (fintech) company that leverages advanced data science and proprietary AI-powered technology with the aim of enhancing institutions' financial solutions. They provide an artificial intelligence (AI)-enhanced software platform to assist institutions in originating loans and other assets. 

With operations in the U.S., Israel, the Cayman Islands, and internationally, Pagaya's clients include other high-growth fintech firms, auto finance providers, real estate service providers, and traditional banks. Founded in 2006, the company is based in New York, and went public via a SPAC merger in June 2022.

Valued at $1.03 billion by market cap, PGY is a member of the Russell 2000 Index (RUT), a benchmark of small-cap stocks. Pagaya Technologies has been extremely volatile over the past year, and is down 41.6% in the last 52 weeks. Longer term, the shares have shed 90% in just the last two years. 

However, PGY has bounced back recently, up 30% in the last three months.

Pagaya Reports Mixed Q2 Results

Pagaya Technologies announced its Q2 results in the second week of August, which didn't completely meet Wall Street's estimates. Revenue of $250.34 million was up 28% year over year, and topped analysts' consensus $239.25 million estimate. However, Pagaya's adjusted profit of $0.10 per share widely missed the Street's forecast.

During the quarter, Pagaya’s network volume of $2.30 billion edged out the $2.33 billion estimate from analysts, while interest income totaled $8.19 million against analysts' $9.16 million estimate. Adjusted EBITDA of $50 million rose 195% YoY, and is now at an annual run rate of $200 million.

Cash flow from operating activities reached $15 million, marking PGY's fourth consecutive quarter of positive operating cash flow.

Management also released their Q3 outlook, with revenue expected between $250 million to $260 million, and network volume in the range of $2.3 billion to $2.5 billion. Adjusted EBITDA is expected between $50 million and $60 million.

What's the Analyst Forecast for Pagaya?

Analysts are generally optimistic about Pagaya, which has a consensus “Moderate Buy” rating from 8 analysts in coverage. 

Most recently, Benchmark analyst Mark Palmer initiated coverage of PGY stock with a “Buy” rating and a price target of $21, with the analyst indicating that the stock's post-earnings sell-off was overdone.

"Some investors zeroed in on a single negative data point in PGY’s report – the ~$58m in losses it incurred during the quarter due to the marking of older-vintage loans to fair value – and appear to have overlooked the company’s significant progress on multiple fronts, as well as the fact that it is now positioned to begin self-funding its growth and achieve GAAP net income profitability in 2025, in our view," Palmer explained in a note accompanying the new coverage. "Meanwhile, the company during the quarter added impactful new partners on both the loan origination and funding sides of its network, received its first-ever AAA rating in its personal loan ABS program, and achieve an important milestone by achieving positive incremental cash flow on network volume." 

The mean price target for PGY is $27.00, implying expected upside of more than 79% from Friday's close.

On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.