What happened
Shares of the artificial intelligence (AI) lending platform Pagaya Technologies (PGY -5.32%) traded roughly 11.5% higher as of 3:04 p.m. ET today for no obvious reason other than the continued volatility the stock has seen since June. The stock is now up more than 13.6% over the last week.
So what
Pagaya merged with and went public through a special purpose acquisition company (SPAC), a deal completed in June.
Following the company's registration statement later that month, shares of Pagaya flew higher after investors learned that the company had an extremely small public float. Data that was updated at the end of July showed the float only consisted of about 309,000 shares.
When many SPACs announce the company they are planning to acquire, investors have the opportunity to redeem their shares if they are not happy with aspects of the deal, which can shrink the float. Then shares held by company employees and the SPAC sponsors have certain restrictions before they can be sold.
Now what
With Pagaya now trading around a $15 billion market cap, I would recommend selling Pagaya at these levels, given the stock is clearly being driven up by manipulative trading as opposed to its actual fundamentals. The company lost $91 million in 2021 on total revenue of $475 million.
The fintech loan platform serves as a middleman for financial institutions, underwriting certain loans and then selling them to a network of institutional investors.
While the company may have potential, it is simply trading at far too high of a valuation to be considered right now. Eventually, more shares will be eligible to be sold, and they will flood the market and likely drive down the price.
