If you are looking for a cheap -- in valuation and entry price -- artificial intelligence (AI) stock that has multibagger potential, consider Pagaya Technologies (PGY 6.27%). This AI stock is so cheap -- trading at $11.85 per share -- that even just a $200 investment could buy you roughly 17 shares.
This is a particularly good time to snag some shares, as the stock's price plummeted some 43% year to date and is trading near a 52-week low. The reasons for its decline have a lot to do with resetting for future growth.
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Pagaya is going through some strategic repositioning
Pagaya Technologies is a fintech that has developed AI technology for banks and financial institutions to evaluate and process loans. Its major focus is on "second look" or non-prime loans, those rejected by banks as potentially being too risky. The banks then send them to Pagaya for a look, and if they're approved, Pagaya finds a lender within its network.
But it has been expanding its services for prime loans with major banks like Wells Fargo and US Bancorp that use it to process loans more efficiently or get more exact terms. It's also expanding into auto loans and point-of-sale loans with buy now, pay later companies like Klarna.
NASDAQ: PGY
Key Data Points
Pagaya turned a profit in the latest quarter, with $34 million in GAAP net income, up $272 million year over year. Its revenue increased 20% year over year while its network volume rose 3% to $2.7 billion, but both of these were below expectations. In addition, the company offered lower-than-expected revenue guidance for the first quarter and full-year revenue that projects slower growth. As a result, the stock price tanked after earnings.
But the lower growth numbers and conservative guidance have a lot to do with the company pivoting away from some of the more risky aspects of its business that "remain profitable but exhibit higher variability of potential credit outcomes."
For example, last year, the company exited its single-family rental (SFR) home business, where it facilitated the acquisition of homes for institutional buyers, then managed those properties. Getting out of this business reduced its revenue and network volume, but moves the company more toward an asset-light model of just providing the AI infrastructure that it sees as being the most lucrative, long-term.
Good time to buy Pagaya stock?
So while revenue may take a short-term hit, that is reflected in the guidance and should invite better year-over-year comparisons. But the new products it is ramping up, and the broadening of its services and customer base, should result in significantly higher-margin revenue growth in the years ahead.
Analysts project a roughly 14% jump in revenue and a 17% surge in earnings in 2027.
The stock is dirt cheap, with a forward price-to-earnings of just 10, and its long-term five-year price/earnings-to-growth (PEG) ratio is a minuscule 0.09. Furthermore, 100% of the 10 analysts who cover it rate it as a buy, with a median price target of $30 per share, which suggests 153% upside.
Pagaya is certainly a stock to put on your radar, and at the low entry price, you don't need to break the bank to establish a small position.
