Pagaya stock continues volatile run with 60% drop amid lockout expiry

By Emilie Bary

AI lending company could be a ‘long-term winner’ but faces short-term risks, analyst says

Shares of Israeli fintech company Pagaya Technologies Ltd. continued their frantic run on Tuesday, falling 60% at noon in a move believed to be linked to the expiration of a lockdown.

Pagaya (PGY), which uses artificial intelligence to model lending risk, went public in June through a merger with a special purpose acquisition company (SPAC). The company noted in filings that the lockdown restrictions were to be partially lifted on September 20.

“The specific catalyst driving this week’s action is the partial expiration of the post-SPAC foreclosure agreement occurring today,” MoffettNathanson analyst Eugene Simuni wrote in a note to the media. customers on Tuesday.

Pagaya revealed that the September 20 expiry applies to 50% of blocked shares. The restrictions are due to expire for the remaining 50% of the shares on December 19.

Shares of Pagaya are set to fall for the fifth consecutive session, although the company is used to seeing wild stock swings back and forth. The stock had two daily 100% jumps in July, and its shares are now trading about 90% below their Aug. 2 closing high of $29.95.

Simuni noted that Pagaya’s stock “has been volatile since SPAC and is now trading at a significant premium to its fintech peers (19x EV/NTM GP for Pagaya vs 8x peer average)”, referring to the ratio of business value to estimated gross profit for the next 12 months.

While Simuni sees Pagaya as a “long-term winner in the ‘smart’ lending space”, he also sees greater volatility in store for the stock, which he initiated with a market performance rating the last week. Pagaya has the next expiration date for the lockdown looming later this year, and it also faces the impact of interest rate increases on its business, according to Simuni.

“[T]The current macroeconomic environment triggers several acute short-term risks for disruptive digital lending platforms such as Pagaya – the most significant being the risk that “smart” underwriting models (not yet tested in an adverse credit environment) will underperform. perform and third-party funding (needed for electricity) dries up,” Simuni wrote. “Thanks to the unique features of its model (for example, the use of pre-financed financing), Pagaya is immune to some of these risks, but is not immune to them.

-Emily Bary

 

(END) Dow Jones Newswire

09-20-22 1239ET

Copyright (c) 2022 Dow Jones & Company, Inc.