Online Lending Is Sparking Multi-Billion Dollar “Unicorn” Valuations: Here Are 4 Stocks To Watch
The Silicon Valley Insider, a technology focused Investment Newsletter would like to alert investors about several long-term stock ideas which show the strongest upside in the exploding online lending market and which present opportunities for outsized returns.
Wall Street has had its best run in about 4 years and if you ask most of the big-name analysts on Wall Street, equities will be a good bet for investors for years to come. We agree with the broad projections. After all, we are seeing similar things across the globe. Over in Europe stocks are racing away. The same is happening in Asia, too. The general consensus is that stocks are still the only game in town worth playing. You can try your hand at other investments, but chances are the returns will not be as pleasant.
But look, we aren’t burying our heads under the sand on some of the issues affecting the economy and the markets. Things are tough on a few fronts. We believe in our recommendations because as Victor Chen points out in The Recession Proof Business, “when a $14 trillion economy shrinks 2%, there’s still $13 trillion left on the table!” It’s all in the mindset and spotting the opportunities.
Thank your lucky stars because the opportunity-spotting has been done for you. Imagine investing not only in bullish equities, but also, into a sector itself that is about to witness immense growth. Double the opportunity, that could be considered very inexpensive by historical standards.
Before we launch into those four must-have stocks, here is what you need to know about the online lending market:
- Over $12 billion in new loans were generated in 2014 1
- Morgan Stanley says that unsecured online lending is worth around $7.4 billion annually and should grow by around 47% CAGR through 2020 2
- P2P (Peer-to-Peer lending) is expected to reach $350 billion by 2025 3
- Online lending platforms are attracting big-dollar valuations from Wall Street. One company raised $870 million at IPO 4
- Several online lending platforms are boasting valuations larger than some of America’s biggest Banks. 5
- Larry Summers (former Treasury Secretary) predicts that online lenders could end up capturing more than 70% of the small business market 6
- Online lending has attracted the likes of Goldman Sachs. The Wall Street giant with a market cap of $90 billion and assets worth nearly $1 trillion has validated the growth potential of the market 7
That should surely convince you of how big online lending is at the moment. More importantly it should convince you of the growth trajectory in the market.
Here are our 4 top picks in the space. The ranking of the companies is from most undervalued (greatest upside), to least undervalued (smallest upside). All are worth your attention.
IEG Holdings Corp. (OTC: IEGH) is our top investment opportunity that we believe provides the greatest upside, at the cheapest price. IEGH provides $5,000 online unsecured consumer loans to individuals. It offers loans for debt consolidation, medical expenses, home improvements, auto repairs, major purchases, and discretionary spending.
Right now IEGH is growing its base in the USA and is a state-licensed direct lender operating in 16 states. Given the rock-solid setup this company is strongly positioned to grow into one of the heavyweights of the online lending history.
Venture capitalists have committed over $350 million to companies like IEGH so far in 2015. The average deal comes in at around $23 million according to some figures. This is 64% increase over average deals recorded in 2014. 8
But our eyes are on IEGH for another important, perhaps deeper reason. The company’s target market is the everyday consumer, perhaps the biggest untapped market in all of finance: These people are lost at sea and are being left out of the American dream.
A report from the Federal Deposit Insurance Corporation (FDIC) estimates this population at around 106 million people. That’s a third of the US population. 9
IEGH has a really good opportunity to reach these people and in doing so grow its revenues. We’ve already detailed the $12 billion in new loans that were disbursed to this market above.
IEGH’s CEO has shown investors that the company’s business model works. Back in Australia he previously disbursed over $48 million loans to some 11,500 customers and has already disbursed over $10 million in loans via IEGH in the USA to date.
The USA offers the biggest growth opportunity and IEGH is about to tap right into its core. The company plans to offer loans in 25 states by early 2016. New York and Ohio are high on the list and rightfully so; these are huge markets.
The growth of IEGH is due for some acceleration too. The company is planning an uplisting to the NASDAQ and this will attract millions of eyeballs to the stock. However, the opportunity is now, before the masses take notice, not later.
LendingTree, Inc. (NASDAQ: TREE) was once like IEGH. Today the online lender is trading at $121 a share!
What happened? Well, TREE had its IPO back in 2000, surviving the dotcom bust and since then has grown to a market cap of $685 million. 10
TREE has since inception played matchmaker on more than 30 million loan requests. It’s also managed to facilitate over $214 billion in closed loan transactions. We guess you don’t get to $121 a as share without creating some serious value. And delivering value is just what TREE seems to do best.
The company has had a solid Q3, 2015, reporting revenues of $69.80 million and net earnings of $7.38 million. Gross margins jumped from 92.76% to 95.38% compared to Q3 2014.
TREE, no matter how you slice it, is growing which makes it one of the top companies to watch in the online lending space. At $121 a share we don’t expect you to stuff too much of it in your portfolio. While upside is indeed very much present, keep in mind, the higher the price, the lower the upside potential.
If Wall Street has a poster company in the online space it is definitely LendingClub Corporation (NYSE: LC). The company has a market cap of $5.32 billion. VC’s saw the promise and poured millions into the company which had its IPO late last year.
LC raised $870 million at IPO and though priced at an initial $15 a share, it opened on the day higher and peeked at $29.29.
Things have settled down a bit since then but LC is still one of the strongest players in the space. The company is exploding as a result of the exponential growth of online loans. In the quarterly results LC boasts $2.2 billion in loans originated. It’s on track to originate more than $7.5 billion in 2015.
At $14 a share currently, LC is very good value on a company that has showed Wall Street its insides. We anticipate strong growth continuing as the online lending market matures.
On Deck Capital, Inc. (NYSE: ONDK) targets small businesses via its online lending platform but the company has very credible results. The company recently expanded its product set to reach even more small businesses and generate greater value in the marketplace.
Loans and loan terms have been expanded and small businesses can now access $5,000 – $500,000 with 3-36 month terms (up from $5,000 – $250,000 with 3-24 month terms).
Line of credit is also up to $100,000; up from $20,000.
The expansion is expected to allow ONDK to bolster the $3 billion delivered to small businesses to date. If Larry Summers is right, ONDK could be one of the front runners as online lending platforms capture more than 70% of the small business market.
Like all our other selections ONDK is built for solid long-term growth. This should be in your watch list.
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