Shares of the fintech company Pagaya Technologies (PGY 2.38%) traded more than 16% lower as of 10:34 a.m. ET today after surging more than 100% at one point yesterday for no obvious reason.
Pagaya recently started trading publicly last month after merging with and going public through a special purpose acquisition company (SPAC) at an $8.5 billion valuation.
SPACs, which are essentially shell companies that provide an alternative avenue for private companies to go public, were all the rage in 2021. But many companies went public through SPACs when market valuations were much higher, which has resulted in many former SPAC companies selling off intensely as soon as they go public.
Yesterday, Pagaya filed its registration statement, which revealed that it only had a public float of about 945,000 shares, representing 0.1% of the pro forma ordinary shares outstanding.
It also looks like the short interest at the end of June was close to 170,000 shares, or roughly 18% of the public float, which likely set up some kind of short squeeze. Even after the huge rally yesterday, shares of Pagaya are still down close to 48% on the year.
Pagaya leverages artificial intelligence to better evaluate credit decisions and help partner financial institutions and other fintech companies gain more customers more efficiently.
The company certainly looks interesting but an $8.5 billion valuation is likely too rich in the current market, considering the company took a more than $91 million loss in 2021.
I am intrigued by the company but am going to take a very cautious approach to the stock right now, considering market conditions and considering more shares are likely to eventually come onto the market from existing Pagaya shareholders or from investors who made a private investment in the stock, otherwise known as a PIPE.