It is hard to find an artificial intelligence (AI) stock these days that investors would rate as a value stock, but Pagaya Technologies (PGY +4.79%) is one. AI stocks and value arenʻt mutually exclusive. It's just that most AI stocks are overvalued, not undervalued, given the hype surrounding them.
But Pagaya has somehow avoided the hype, remaining just below the AI radar. It's stock trades at around $13 per share and has a trailing 12-month price-to-earnings (P/E) ratio of 11. But it has a forward P/E ratio of just 4, and its five-year price/earnings-to-growth (PEG) ratio barely registers at 0.03.
In other words, Pagaya stock is trading like a deep value stock, but it has massive growth potential.
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Pagaya uses AI to place loans
Pagaya is a fintech that uses AI to help banks and financial institutions process loans. But the company specializes in handling non-prime loan requests that have been passed on by banks. Rejected loan requests deemed too risky by the average bank are forwarded to Pagaya, which uses its AI-enabled platform to determine if an alternate lender can be found in its network.
Pagaya is really the only company that specializes in this area, so it has carved out a growing niche. It makes most of its revenue through fees for placing these loans with lenders.
NASDAQ: PGY
Key Data Points
In the first quarter, it generated $317 million in revenue, up 10% year over year. Of that amount, $299 million, or 94%, came from fees. The rest was mostly from interest income.
Its network volume rose by 9% in the quarter to $2.6 billion, fueled by growth in auto loans and point-of-sale loans, like those obtained through buy now, pay later (BNPL) companies. The point-of-sale loans are a rapidly growing part of its business and should continue to surge, as Pagaya just signed a deal with Sezzle to provide that service for its BNPL platform.
In addition, Pagaya reduced its expenses in Q1. This allowed it to raise its operating income by 67% to $80 million, while its net income spiked 212% to about $25 million.
Growth outlook
Pagaya anticipates strong growth this year, and it recently raised its guidance for network volume and net income. The company now anticipates network volume of between $11.45 billion and $13 billion in 2026, which would be up from $10.5 billion last year. The previous guidance called for $11.25 billion at the low end.
Revenue is forecast by management at $1.4 billion to $1.575 billion this year, up almost 15% at the midpoint from 2025. Net income is anticipated to be within a range of $110 million to $160 million, up 67% at the midpoint from last year. The previous guidance called for net income of $100 million to $150 million.
It is this type of growth, combined with its dirt cheap valuation, that has Wall Street analysts extremely bullish on Pagaya stock. 100% of the 10 analysts covering Pagaya rate it a buy, with a median price target of $25 per share, suggesting 86% upside over the next year or so.
If you are looking for a cheap growth stock with big upside, this is one stock to consider.
