Personal loan leader LendingClub (LC 3.22%) stock pulled back nearly 16% following its fourth-quarter and full-year earnings release on Jan. 28. However, this pullback may be a great chance for investors in the banking sector to capitalize on one of the industry's best growth stories at an incredibly cheap valuation.
Coming into earnings, the stock had more than doubled since the "Liberation Day" bottom in April 2025. So, the market may have been looking for an excuse to take profits on any imperfections.
LendingClub did actually beat revenue and profit estimates in Q4, while also forecasting strong growth for the year ahead. So why did the stock pull back? It appears the forecast for next quarter's earnings per share (EPS) left something to be desired.
However, there were good reasons for the near-term earnings figure. Given that the sell-off seems short sighted, the pullback has created a buying opportunity in this high-growth stock.
NYSE: LC
Key Data Points
A beat with strong guidance, so what's the problem?
In Q4, revenue rose 22.7% to $266.5 million, with EPS rising 338% from last year's near-breakeven mark to $0.35 per share. Both figures actually beat expectations, although not by much. Of note, originations rose 40% to $2.59 billion at the high end of management's original outlook and setting the stage for future growth.
Investors may have taken issue with the current quarter's guidance of flat, quarter-over-quarter originations growth at $2.6 billion and only slight EPS growth in a range of $0.34 to $0.39. On the other hand, investors should also be aware that LendingClub's business is seasonal, with lower first and fourth quarters and higher numbers over the spring and summer.
To that end, management also gave full-year guidance of $11.6 billion to $12.6 billion in originations and a full-year EPS guide of $1.65 to $1.80. While that would mark a deceleration from the outstanding growth of 2025, that guidance would still amount to 26% originations growth and 48% EPS growth at their respective midpoints.
Why investors may have been hoping for even more
There's a reason that investors may have been hoping for more. Most significantly, LendingClub is transitioning to a new accounting method for all loans originated beginning in 2026, which should ultimately benefit its bottom line.
Under its prior CECL (current expected credit losses) method, LendingClub had to estimate all future losses for each of its loans held for investment and then deduct most of those losses upfront when it made the loan. So, since LendingClub has been growing over the past two years, that has meant more "upfront" costs, which depress earnings as the company grows.
But with the new Fair Value method -- an accounting method embraced by most of LendingClub's fintech peers -- LendingClub will record positive earnings right away. Although those earnings will grow more slowly over the life of a loan, the method will add earnings right away as loans are added to the loan book.
Given that older loans have already taken their upfront reserves and new loans will be accounted for with higher near-term earnings, investors might have hoped for even more profit growth this year, especially in the current first quarter.
Image source: Getty Images.
But investors should take the pullback as an opportunity
While the guide for "only" slightly higher quarter-over-quarter EPS growth might have disappointed some, investors should rest assured there doesn't seem to be any hidden costs here or higher-than-expected credit losses.
Rather, management explained that it is using the accounting change as an opportunity to ramp up marketing investments for future growth, a process that began last year.
After the COVID scare and then the fastest interest rate increases in history in 2022 to 2023, LendingClub pulled back from most marketing channels, except for its most efficient ones. But with interest rates now coming down, loan prices rising, and more big-name financial institutions having signed long-term purchase agreements to buy its loans, LendingClub can now reinvest more aggressively in growth. That process began in 2025, as evidenced by the full-year 33% growth in originations, but LendingClub is also aiming for 20% to 30% annual growth over the next several years.
The thing is, as LendingClub reignites its marketing engine and reenters new channels, the initial ramp is less efficient because the company is testing new content and strategies for these new channels.
I had the pleasure of speaking with CEO Scott Sanborn around the earnings release, and he explained that the company was almost all the way through the tuning of its partner marketing channels, a process which began in Q2 2025. However, other new channels are a little further behind. To "ballpark" it, Sanborn estimated the company was about 75% of the way to maturity in the direct mail channel and about halfway through paid search optimization. Additionally, Sanborn said the company is beginning an early experimentation with social media and connected TV advertising.
The second and third quarters are higher-volume periods for LendingClub, which can therefore absorb the extra spend and deliver better response rates, which is why LendingClub began its marketing ramp in Q2 of last year. But Sanborn noted on the conference call with analysts that LendingClub is currently seeing such momentum in its business that management is pulling the new social media and connected TV marketing experiments into the seasonally lower Q1.
The company is also investing in technology and personnel behind the new home-improvement lending initiative management announced at last November's Investor Day. LendingClub also announced a new lending initiative with furniture retailers just this month, further ramping its large-purchase consumer finance business. In my interview with Sanborn, he noted that these new verticals won't add much to the growth figures in 2026 but will contribute more heavily in 2027 and especially in 2028 for sustained growth at scale.
Finally, LendingClub is also pursuing a rebranding, as the company has evolved from a peer-to-peer lender in the 2000s to essentially a new-age bank with a more institutional loan-buying base. The research for the rebranding adds an additional near-term cost, but this cost should fade after the rebrand takes place later this year.
The ramp of these growth investments in a seasonally slower quarter likely explains why the Q1 EPS guidance may have disappointed. But it also sets the stage for better earnings growth in 2027 and beyond.
A bargain PEG ratio
After LendingClub's post-earnings sell-off, shares trade around $16.50, or just 10 times the lower end of 2026 guidance.
That seems absurdly cheap, given that LendingClub has routinely guided conservatively. Even if one thinks a 48% earnings growth target is unsustainable and only due to this year's accounting change, management still forecasts a 26% originations growth rate. Absent the favorable accounting change, earnings should still grow at least in line with originations going forward.
Meanwhile, by the end of this year, LendingClub's marketing machine should be tuned and ramped for efficiency. That likely means 2027 marketing costs should moderate relative to revenue, so earnings growth should be sustained in 2027 and beyond, even as the accounting change benefit fades.
Going forward, even if LendingClub sustains the low end of its 20% to 30% growth target, a forward price-to-earnings (P/E) ratio of 10 makes for a price-to-earnings-to-growth (PEG) ratio of 0.5. Of note, any PEG ratio under 1 is considered quite cheap. And if management hits the high end of 30% EPS growth over the medium term, the PEG ratio would fall to 0.33, which is a ridiculously low valuation, even in the relatively low-priced financial sector.
