Shares of peer-to-peer lending platform LendingClub (LC 0.45%) shot 11.3% higher today as of market close. It was a nice relief rally for shareholders after a tough couple of months. Set off by a coming raise in interest rates this year, the stock has been halved in value from its last peak at the beginning of November 2021.
Zooming out a bit, though, LendingClub has rallied an incredible 117% in the last year as its multiyear makeover starts to pay off.
High-growth fintech stocks have been getting sold off hard as of late. The Federal Reserve has indicated its accommodative monetary policy to keep the economy in recovery mode during the pandemic is going to get rolled back in 2022 perhaps at a faster pace than originally thought. Higher interest rates have been all the talk. Higher rates lower the value of future cash flows, which lowers the present value of a stock.
Given its rapidly improving bottom-line, higher rates seem to be what's eating LendingClub right now (since fast-growing businesses are often the most sensitive to interest rate changes). Plus, LendingClub itself has said that rising inflation puts consumer health at risk, which would impact its lending business.
In spite of the narrative turning negative as of late, LendingClub's fundamentals are poised to continue strengthening in 2022. And since it's a bank, gradually higher interest rates would actually be a positive for this business. At just under 10 times one-year forward expected earnings, a lot of pessimism is priced in after the steep sell-off the last two months.
Expect plenty more volatility ahead. LendingClub's cheap valuation doesn't mean it can't go lower. But if you're focused on the resurgent LendingClub's potential in the coming years, now could be a great time to start nibbling.