What happened
Shares of the digital subprime lender OppFi (OPFI 10.31%) had jumped as much as 23.5% as of 11:45 a.m. ET on Monday for no obvious reason, before giving up some of those gains. The stock traded about 10% higher as of 2:10 p.m.
While there is no obvious reason for the move, there are a few potential explanations. The company is set to release earnings results for the first quarter of 2022 later this week, and CEO Todd Schwartz recently made comments that suggest the results may be good. Investors also may view the stock as a short-squeeze candidate.
So what
Investors might be getting ahead of what they believe will be a positive earnings report Thursday. Today, in an article in The Wall Street Journal, Schwartz said that the strong loan-origination volume seen in the fourth quarter of 2021 has continued into 2022.
OppFi uses data and artificial intelligence to make quick decisions on loans for borrowers who typically make $50,000 a year and need emergency funds. Since going public at the end of 2020, OppFi is down about 65% as investors have worried about how consumer balance sheets will hold up in the face of rising interest rates and high inflation. There also could be a recession within the next two years.
Image source: Getty Images.
The other possibility is that investors view OppFi as more of a short-squeeze candidate. This happens when a stock shoots up, and then short-sellers need to cover their positions by buying the stock, sending it higher.
OppFi has a small public float of 12.63 million shares, and as of April 14, roughly 10% of the shares were sold short. The average number of shares traded, according to Robinhood, is a little less than 110,000, and the volume today is currently around 1.44 million shares.
Now what
I'm more prone to believe OppFi is moving due to investors viewing it as some kind of short-squeeze candidate. Given how tough the market has been, it seems a bit hard to believe that one very broad statement in The Wall Street Journal is moving the stock so heavily before earnings, although perhaps Schwartz's comments were finally enough to get investors interested.
But at these levels, I actually do believe OppFi is undervalued on a fundamental basis. The company trades at roughly two times earnings and has been profitable for a number of years now. At the beginning of the year, OppFi announced a $400 million share-repurchase program, and Schwartz has been clear that more could be coming to support the stock.
Subprime debt is not exactly what you want to be holding with a recession possible over the next few years, but the company does look cheap right now.
