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Funding Circle Shares Lost Half of Value Since IPO; Is it a Buying Opportunity?

The peer-to-peer lending platform Funding Circle (LON: FCH) share price lost close to half of its value since last October. The traders and analysts are blaming higher valuations, negative earnings and the expected decline in investor’s returns for the price drop.

Its shares are currently trading close to £260, down from an all-time high of £440 that it had hit in October 2018. Although the stock has regained some momentum after hitting 52-weeks low of £230 a share at the beginning of this month, it is still trading well below from all-time high.

Investors and traders are unsure how this stock would behave in the coming days as the stock of this P2P platform has a limited history in stock markets.

Read More: Funding Circle Review 2019 – Is it a Good Investment?

The peer-to-peer lending platform Funding circle has generated substantial revenue growth last year. Its revenue grew 55% to £141.9 million compared to revenue of £94.5 million in the prior year. The company has witnessed considerable growth in loans and new users – which is an indication of customers increased confidence in this platform.

The loans under management were standing around £3.15 billion from £2.11 billion in 2017. The loan origination stood above £2 billion in 2018, representing a growth of 40% year over year growth.

Unfortunately, Funding Circle management fails in turning high revenue growth into big profits. Indeed, the company generated a bigger loss than previous periods. Its adjusted EBITDA loss of £28.5 million in 2018 increased from a loss of £25.1 million in 2017. Its basic loss per share was at 18.2 pence compared to a loss of 14.0 pence in the previous year.

Growth companies always prefer to invest sharply in marketing and other operational activities to support revenue growth. Therefore, the chances for moving into profitability remain low.

HSBC has set a ‘Buy’ rating for Funding Circle share with the price target of £310, indicating an upside from the current level. The firm sees revenue growth projection as a key catalyst for share price 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.