The MOST Undervalued Company in the Stock Market

A Deep Dive: The Fintech Company for the Underserved

OppFi $OPFI (A Misunderstood and mispriced Fintech Stock)

Overview of the business

OppFi is an AI powered fintech platform that powers banks to offer accessible products focused on the millions of Americans who don’t have reasonable financial options, and who also lack significant savings. OppFi is seeking to transform subprime credit lending, which caters to riskier customers with FICO scores below 600, the average OppFi customer has an average loan amount of roughly $1500; with an average loan term of 11 months.

Target Demographic:

There are 150 million Americans, 45% of the nation’s population, with less than $1000 in savings. These 150 million Americans are OppFi’s target demographic. OppFi is focused on building a strong community of poorly served and underbanked consumers in order to capture this area of the market. The capturing of this underserved market could potentially lead to margin expansion, thus increasing profitability by lowering customer acquisition costs. Management has showed how their business model is effective in lowering customer acquisition costs year after year.

Customer Service:

OppFi has fantastic customer service that is ready to pickup the phone at anytime, as a result OppFi has an incredibly high Net Promoter Score of 85 higher than the likes of Upstart, Apple, Starbucks, Costco, and Affirm. OppFi is truly driven to serve their subprime customers and confident with the value that their product ensures, to the point that OppFi’s customer service is trained in referring customers to cheaper alternatives if in that case a local bank for example is offering a better interest rate on their loan for that specific customer.

OppFi’s products:

OppFi’s main product are Opploans (Their short-term installment loans with no late fees). One may ask what OppFi’s main value proposition is, that they are a business that can bring value to the customer above and beyond the customer’s next best alternative; by offering a cheaper, faster, and more efficient product , with no late fees, cheaper APR’s, and no origination fees, and a fantastic customer service that treats their customers as if they were family members, Opploans is the main revenue driver of the business currently, but in order to fuel their growth OppFi has launched, and is planning to launch many other products; their most recent being SalaryTap which enables customers to pay off loans by setting up direct payments from their paychecks. Because this type of loan is more of a securitized product, loan amounts would start at $2,000 for 2 year durations and would have significantly lower interest rates of around 30%.

OppFi recently released its special sub-prime credit card for those who have sufficiently paid off their Opploans. OppU is OppFi’s educational program that encourages and teaches financial literacy and proper credit behavior.

Regarding OppFi’s Loan APR’s:

While OppFi’s loans may seem extremely high at first glance one must consider context, OppFi offers loans that are significantly cheaper than alternatives such as; Payday and Title loans, LTO’s, Bank overdraft, or Earned wage access loans. One must also take into consideration the high fixed costs related to these loans. High fixed costs such as originating, servicing, and collecting the loans, all of which are tied to the loan application itself; so when you get these smaller sized consumer loans these typical fixed costs now represent a higher percentage relative to this smaller loan amount. The federal reserve itself has restated that APR’s for these type of loans are extremely high and will remain this way because break-even of a $2500 loan is roughly 36%; however OppFi has managed to undercut this due to their use of Artificial Intelligence (Their use of AI has also led to making credit scores obsolete), and the integral role it takes in qualifying these loans. (OppFi offers APR’s ranging from 30%-160% accordingly)

Valuation and Growth and Financial Health:

OppFi trades insanely cheap when compared to any player in the industry, OppFi is being valued as if they are a dying retail business, when in fact they are growing really quickly, they are very profitable and have been for over 5 years. OppFi has a quick ratio of 2 (Current Assets/Current Liabilities), indicating that they are financially healthy. OppFi grew revenues at 47% in their latest Q3 earnings report, and is expected to grow revenues 31% in 2022 and (OppFi is indeed a high growth company). In terms of valuation this is the astonishing part OppFi trades at a 2021 Enterprise value to Free Cash Flow EV/FCF: 6.24, and a 2021 Forward P/E of 9

What am I doing? Summary of my thoughts:

OppFi is a fast growing AI fintech platform, growing revenues at 30%+ that is being valued like its a dying retail business, it has a healthy balance sheet, its highly profitable, it has an unmatched value proposition, and it is focused on serving the underserved and underbanked, and to top it off they have a ridiculously high Net Promoter Score, as well as a fantastic mission and customer service team, with management that is executing fairly well. OppFi is misunderstood to be a loan shark of some kind, when in reality the federal reserve themselves recognize OppFi to be fintech lending company. OppFi will continue working hard to help people in need of banking and financial literacy, and OppFi will take in their customers and treat them as if they were a family member in order to serve them as best they can. Over the next 5 years I could see OppFi being a 5-7 bagger if management continues to execute on their growth, and as the market begins to realize how OppFi is transforming the industry and should be valued closer to peers like Upstart and lending club, the stock price will eventually catch up to its fundamentals, but for now I will take advantage of OppFi’s major discount and buy the dip.

(I AM NOT A FINANCIAL ADVISOR)

- Michael Connally