What happened

Bread Financial Holdings (BFH -0.31%) fell about 14.9% this week as of noon ET today from last Friday's close, according to S&P Global Market Intelligence. The stock price had been down as much as 15.2% during the week. It was trading at $36.49 as of noon ET on Friday, down 45% year to date (YTD).

By comparison, the markets were pretty much flat this week, with the Dow Jones Industrial Average down 0.1%, the S&P 500 off 1%, and the Nasdaq Composite 1.9% lower as of noon ET on Friday.

So what

Bread Financial Holdings is a leader in private-label and co-branded credit cards, as well as buy now, pay later (BNPL) services. It was formerly known as Alliance Data Systems, which acquired Bread in 2020 and took its name in March of this year.

One of the catalysts for this week's dip in the stock price was related to the release of the fintech's performance update for October on Nov. 15. Average credit card and other loans were $19.1 billion at the end of October, up 23% year over year. The data for October includes the recent acquisition of AAA's credit card portfolio.

However, what may have spooked investors was a rise in net principal losses to $98 million from $53 million in October 2021. Likewise, the net loss rate was up to 6.1%, from 4.1% a year ago this October. In addition, 30-day-plus delinquencies were up to about $1 billion from $591 million, while the delinquency rate surged to 5.4%, from 3.9% a year ago.

Company officials said the net loss rate and delinquency numbers were impacted by the transition of its credit card processing services to a new platform. 

Now what

Bread Financial is coming off a solid third quarter, when it saw a 15% increase in revenue with higher loan balances and an increase in net interest income due to higher interest rates.

For the full fiscal year, Bread expects low-double-digit average loan growth compared to the previous year and revenue to be aligned with loan growth. Expenses will be higher, based in part on a $125 million investment in technology modernization. The net loss ratio is expected to be in the low-to-mid 5% range for the fiscal year, up from 4.6% last year.

The consensus price target among analysts is $42.50, which would mean a 16% increase from current levels. The stock is undervalued, with a price-to-earnings (P/E) ratio of 3.69 and a price-to-book (P/B) ratio of 0.82. It is a cheap stock that has been growing through a difficult market and seems to be on track to gain as the economy improves.