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Are LendingClub Shares Undervalued?

LendingClub Corporation (NYSE: LC) shares have been trading in a narrow range of $4.55 to $2 a share over the last two years. The lower than expected performance is blamed on its financial losses along with the scandal related to the founder.

Its founder, Renaud Laplanche, was alleged of selling loans that did not meet the buyer’s criteria; the founder also had several conflicts of interest. This scandal has significantly impacted its share price and financial numbers since 2016.

Nevertheless, the new management has successfully turned things around. It is now one of the most prominent peer-to-peer lending platforms in the United States. The rebound in its revenue numbers indicates lenders and borrowers confidence on this platform.

Chart

Source: SeekingAlpha.com

Despite the growth in revenues as shown in the above chart, LendingClub shares didn’t respond. Its first-quarter net revenue of $174.4M topped analysts’ estimate of $170.2M; the revenue jumped 15% Y/Y – driven by a higher volume of loan originations.

Smart investors, who have a keen eye on market fundamentals, like to buy stocks when others fear. Fortunately, the lower than expected growth in its share price makes the valuations undervalued.

 

Source: Morningstar.com

The stock is currently trading around 2 times to sales and 1.69 times to book value compared to the industry average of 2.13 and 3.12 times, respectively.

The company is aggressively looking to turn back to profitability in the coming days. Combined with revenue growth, they have been working on cost-saving measures to generate profits.

 

Source: Earnings Release

This is evident from strong EBITDA growth in the first quarter. It’s adjusted EBITDA increased 47% year over year to $22.6 million in the first quarter.

The company expects to generate further growth in its revenue in the second quarter. LendingClub’s Q2 net revenue likely stands around $185M-$195M, higher from revenue of $170 million in the previous quarter.

The full-year revenue is projected to come around $795M compared to $695 million in fiscal 2018. Therefore, market pundits are seeing the sluggish share price performance as a buying opportunity. For instance, Wedbush’s Henry Coffey has raised LendingClub stock price rating to ‘Outperform’ from ‘Neutral’, saying “significant gains across all fronts over the last three years supports upside potential.”

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.