Pagaya: Still Unloved, Misunderstood, And Dramatically Undervalued

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Pagaya's valuation remains low both absolutely and relatively despite strong operational performance due to market sentiment and misconceptions about the fintech space in general, particularly ...

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(NASDAQ:PGY) in an article published on SA. Since that time the shares appreciated initially, then fell relentlessly and finally have come back to a level just a bit less than they were when the article was initially published. Unless you are a devotee of roller-coaster rides-and I am not-that is not the performance that is desirable to see for anyone's portfolio. Along the way, I have been asked by many subscribers to my Ticker Target service why the shares had fallen relentlessly or why the shares had a negative response to a beat and raise quarter or why the valuation has remained so low. Investing is supposed to be a logical process; if most investors didn't think so, they wouldn't invest. But that doesn't mean that valuations are logical consistently. Most often, as an analyst covering high-growth IT companies, I see plenty of irrational exuberance. There are more than a few \"Teflon\" investments in the IT firmament. But sometimes one runs across the opposite-\"disexuberance\" is of course not a real word, but it has characterized investor sentiment in the fintech space in general, and then for Pagaya specifically. When it comes to Pagaya, the equivalent to urban legends abound. Some of them have kernels of validity, some are the result of misunderstanding and are more opportunities than problems. This article will attempt to disentangle the wheat from the chaff, and to look at Pagaya's business as it is today, where it is heading and the risks to the thesis. The conclusion I have drawn is that investing in the company's shares at the present valuation offers an exceptionally favorable balance of potential rewards set against some manageable risks. Over the past year, or perhaps longer, investing in the fintech space has not been a pleasant experience. Pagaya isn't alone in being disdained by investors. And that has led to some huge valuation anomalies. The other day, Affirm (AFRM) reported strong numbers and provided positive guidance. In the few days since the earnings release, the shares rose by 39% before falling back more than 12%. Overall, despite Affirm's most recent share price appreciation, the shares down by 19% so far this year. As an analog, I believe, shares of Pagaya had risen by about 15% over the same two days in which Affirm shares rose. But that has been followed by selling pressure, which left Pagaya shares down 15% last week. Has the fintech space turned the corner in terms of investor sentiment? I try to avoid making those kinds of calls-trying to handicap investor sentiment is like trying to trap quicksilver in a porous vessel. (Quicksilver is not just the name of a men's fashion brand or the name of a character from the X-Man movie series, but an alternative name for mercury, which is a liquid metal that is used in thermometers). The fintech space has suffered from rising interest rates, AI models that were developed without adequate training and data, and consumer behavior heavily influenced by the black swan event that was the COVID-19 pandemic. So, conceptually, an environment of a moderate economic landing and falling rates along with better trained credit prediction models ought to create a rising tide in terms of operational performance lifting many fintech companies. That logically should create an environment leading to the positive rerating for most fintech stocks; Pagaya starts out with one of the more compressed valuations of which I currently am aware. Part of the investment thesis for Pagaya rests on a more favorable environment for the fintech space; if that doesn't happen, it will be more difficult for Pagaya shares to achieve positive alpha. The fact is that considering the macroeconomic data of the last week, coupled with recent comments from Fed Governors such as Chris Waller, should present an ideal environment for fintech equities. But that hasn't been the sentiment. Pagaya shares have proven to be volatile, with price action often dictated by market trends far more than specific company developments. I do not expect that to change in the near term, and that is certainly a risk to consider when investing in these shares. It has been a factor in limiting my holding of these shares to a moderate sized position in my model portfolio that I publish. Pagaya: Exploring its background and raison d'être Pagaya is not a name on the lips of many investors at this point. It started life domiciled in Israel and went through a couple of iterations before evolving into its current form. The company initially focused on providing an AI-powered service that was sold to financial institutions as a way to optimize the loan approval process while providing a superior return to institutional investors. Pagaya went through a SPAC process and started trading in late June 2022. Shortly thereafter, the shares reached a price of $330/share in an orgy of speculation. The subsequent pricking of the bubble obviously left many bag-holders-primarily Israeli retail investors, looking for an exit. One reason for the valuation of Pagaya shares has been this overhang from investors who never intended to hold the shares for years. The unwinding of the speculative trade ultimately resulted in the shares reaching a valuation below $10 in the wake of investor reaction to a capital raise by the company, amidst concerns about significant dilution to fund capital requirements. As is sometimes the case, the share price itself apparently drove some commentators to write negative articles/analyses to justify the share price action. At the start of 2024, and in response to the disheartening share price action, the company took several steps. It executed a 1 for 12 reverse split to bring the market price to greater than $10/share. Reverse splits do not have a history of accomplishing stated purposes-that said, many of them take place for sick companies. In addition, the company moved its headquarters from Israel to New York and has started to file its results in conformity with US GAAP. It set out to recruit American institutional investors and has had some success in that endeavor. Fidelity is now a top 15 shareholder, and other institutions have initiated positions. The company shares are now part of the Russell 2000 index. The company has a two-sided business model. On the one side, the company has developed a network of prominent loan origination partners. These include such companies as US Bank, OneMain Financial, Westlake Financial, SoFi Bank, Ally Bank, The Lending Club and Elavon. The company recently announced that it had signed a partnership with another top 5 US bank for what is called POS lending, but the name of that bank hasn't been released. It has also become a partner of MasterCard by joining the company's Engage program, which basically allows member banks to utilize Pagaya's loan underwriting software at the point of sale. The company earns fees for all of the loans it evaluates/underwrites. Currently, the company has 31 origination partners and has had a goal of adding 2-4 major FIs as origination partners every year. So far, in 2024 it has exceeded that goal and seems likely to end up with 6-7 new major origination partners. The other side of the business is that of securing funding partners who invest in the loans that Pagaya has underwritten. To date, most of these partners have invested in Pagaya underwritten loans through the ABS market. Uniquely, it is an upfront model; the investors buy into a pool of loans that have yet to be created. So far, 120 institutions have invested $22 billion in Pagaya ABS tranches. The performance of the company's ABS has been satisfactory, and this has enabled the company to tap the market frequently for additional funding. In the last reported quarter, it sold 3 ABS tranches. Its latest ABS tranches have received an AAA rating, the first of that class of assets to get such a rating. The company charges a fee for originating these ABS transactions; the fee varies depending on market conditions, and at one point had been close to \"0\". While Pagaya doesn't invest directly in the loans it underwrites, it has a risk retention requirement for the ABS that it sells. This is a statutory requirement of 5% of the outstanding amount of the ABS, and last quarter the company had an investment of more than $900 million in the ABS that it had created. The need to fund the investment in ABS has created a significant capital requirement for the company. Some of the requirements have been satisfied by direct Pagaya borrowings and by borrowings secured by ABS assets. Last quarter, the company completed its first forward flow agreement with Castlelake for $1 billion over the next year for its personal loan program. Forward flow agreements do not have any risk retention requirements. It has also executed its first structured pass through capital raise and continues to have opportunities to raise capital through private funds to enhance capital efficiency requirements. Also last quarter, as will be detailed further, was the first one in which Pagaya's cash flow from operations was sufficient to internally fund its capital requirements, a significant milestone and several quarters sooner than had been expected. At this point, Pagaya is active in 4 different components of consumer lending. Its initial product, personal loans, represents about 60% of its revenue and is highly profitable at this stage. About 15% of the company's volume comes from auto-lending. Overall, the auto-lending market is a significantly larger opportunity than personal loans; Pagaya believes the auto-lending market is 3X or more the size of personal loans. The company has announced a number of partnerships with a variety of banks and FIs to facilitate Point of Sale lending. It has one active partner, Klarna, in this area and overall POS lending represents about 10%-15% of current volume. The balance of the company's business is the financing and management of single family houses owned by investors and then rented. This can be a lumpy business with significant quarterly variation. Over the next year, or perhaps longer, percentage volume growth is likely to be greatest in auto-ending and in POS. Most recently, and perhaps in response to past experience, Pagaya has been quite deliberate in its on-boarding process. It develops data based on each lending partner rather than using blanket formulas. Onboarding of a new partnership can take 9 months or more to reach planned volume. So, when the company announces a new partnership such as one with Elavon - an affiliate of US Bank for POS lending - volumes from that partnership can take a significant amount of time to become significant. The company has been particularly cautious in the year since I have followed them in terms of accepted loan applications. Over the last year or so, it has converted less than 1% of loan applications. This has been and remains a major differentiator compared to the model of Upstart, which has a much higher percentage of application conversion Pagaya's latest reported quarter: really lots of positives to unpack Pagaya reported its results for its Q2 about a month ago. The results were mainly better than expected, although not without some blemishes. The specifics were as follows: Network volume up by 19% and within the guidance range; Total revenue up by 28% and about 4% greater than consensus expectations; Adjusted EBITDA up by almost 3X from the year earlier period and greater than guidance. In terms of guidance, the company's estimates for network volume were unchanged, the mid-point of its expectation for total revenue was increased a couple of percent, and the company raised its EBITDA expectation by another 7% after raising its full-year EBITDA forecast in June. The company doesn't forecast non-GAAP EPS, and 1st call estimates for EPS include both GAAP and non-GAAP estimates. The company manages the growth in network volume carefully; while the 19% growth that was reported for the quarter may seem to be disappointing, it is more a function of the company's strategy to positively manage outcomes and defaults rather than a strategy of maximizing growth. The growth of network volume is really more a function of the company's application conversion rate of less than 1% rather than a function of lack of demand for the loan offerings of its partners. I think this part of the Pagaya investment thesis is much underappreciated. The company reports a metric it calls Fee Revenue Less Production Cost (FRLPC). This is essentially the equivalent of gross margins for a non-financial company. This metric showed very strong trends and was the biggest upside that the company reported. Overall, the FRLPC ratio reached 4.2% of network volume-above the top end of the range of the company's previous expectation. Most of this was driven by the strong performance of the company's personal loan vertical. Last quarter, FRLPC rose by 49% year-on-year, and by 5.5% sequentially. This improvement has led the company to raise its forecast for the FRLPC ratio to a range of 3.5%-4.5%, and in turn, is the principle factor driving the improvement in the company's EBITDA performance. Core operating expenses were 22% of revenue during the quarter, down from 28% in the prior year. The company took an action to reduce headcount in the quarter which is estimated to reduce the run rate of opex by $25 million over the coming year, and it has additional cost savings measures planned. Basically as the company has matured its relations with some personal lending partners, it has seen fees from those partners rise significantly as it processes and evaluates an increasing percentage of transactions originated by those partners, and because the cost of incremental evaluations is minimal, fess revenue has been rising at rates significantly greater than the cost of funding those loans. This is leading to higher take rates and widening spreads, and is a long-term trend. Essentially, the accuracy of the company's forecasters/AI models has led its partners to outsource more volume to Pagaya and this both helps train its models by providing additional data and allows take rates to rise noticeably. The company has several major partnerships with auto lenders, including the one most recently announced wit OneMain Financial, and the same factors that have seen the FRLPC cost rise in the personal loan segment are likely to be seen in auto loans over the coming 6-12 months. Just to recapitulate, the company has announced partnerships of POS lending with 2 of the top 5 banks, and it has an exclusive relationship within the Mastercard Engage program as the exclusive POS/credit evaluation partners. There were several specific developments during the quarter in regard to improving capital efficiency. These included the first forward flow agreement that was signed with Castlelake for $1 billion of personal loans, an AAA rating for recent vintages of its ABS offerings and the milestone in which the company's FRLPC has grown so that capital required from Pagaya to fund network volume has exceeded the capital need to fund that volume. For months this spring, this was a key concern of investors. SA published several articles highlighting this as an existential risk. And now…this risk has dissipated, and it has done so several quarters prior to expectation, as the CFO highlighted in the latest earnings conference call. The most important step for Pagaya to become a cash generating business is to earn more fees on network volume than the capital we use to fund it. We reached that point in the third quarter. As we scale our volume the incremental cash we generate will offset operating costs to get us to total cash flow positive. And it's important to remember the capital we use for risk retention will come back as future cash flows as the security is mature. That doesn't quite mean that the company is covering all of its expenses + capital requirements from fees. The company still has to fund its operating expenses. Non-GAAP operating expenses were running at a bit less than $20 mi./qtr.; the expectation is that they will decline in absolute terms due to a recent RIF, which is expected to save $25 mil./year in operating expenses. Reaching complete self-funding is likely to take place in the 2-3 quarters based on the exact trajectory of the growth in absolute FRLPC dollars which varies from quarter to quarter. I think, as well, that the AAA rating on recent tranches of ABS needs to be highlighted. If nothing else, it will likely improve the spreads that Pagaya can earn on assets funded by ABS by about 50-70 bps. A corollary to that rating is that it helps to validate the accuracy of Pagaya's models. At the end of the day, the accuracy of the company's models is key to everything this company is doing or plans to do. Very few if any other sub-prime loan originators can obtain an AAA rating on their ABS tranches while extending loans to individuals with a 680 FICO score. Over time, the company expects that 55% of its ABS tranches will be rated AAA; the balance will have lower ratings, essentially by design, in order to provide higher yields to investors looking for that kind of asset. At this point, I should mention the blemish on the earnings report was the $58 million mark to market charge the company took on assets on its balance sheet from previous ABS and whole loan transactions. Basically, this indicates that default rates and repayment activity were worse than previously anticipated levels. These are loans that were underwritten in 2022 and early 2023. Obviously, recent loan vintages are performing well, and above expectations, a function of better models and more data about borrowers coming from different institutions. This is the commentary by the company's COO-again from the latest conference call: Our broad thesis which has been validated is that while there is some softening in the consumer spend, their ability to repay seems to be relatively strong. And as we saw in the last quarter, as I said, our credit performance both in PL and auto is pretty much back on track. In fact, our delinquencies on auto in the recent fintechs has come down to its lowest level since 2022. We believe that rates or reducing rates will be a tailwind. Of course, it would be useful and enlightening to know exactly why older vintages saw issues with delinquencies, but at the end of the day, it is the most recent performance, with better tuned and informed models that is of most importance when assessing the future of Pagaya. Finally, mention should be made of the company's acquisition of Theorem. Theorem is an asset manager focused on providing capital to fund consumer loans. While Theorem will operate independently, its investors are, by definition, looking for the kinds of assets that Pagaya underwrites. There should be significant synergies here, and Theorem's investors are another part of the solution for Pagaya in locating capital partners to satisfy risk retention and other requirements to grow its asset base. Pagaya's growth opportunities: Auto Lending and POS Pagaya's growth in network volume has been somewhat constrained recently. Part of this growth constraint has been the deliberate strategy of Pagaya to constrain its approvals with an application conversion rate of less than 1%. I doubt that this is likely to change in the near future. But I do anticipate that the growth in network volume will show a material increase next year to the range of 25%-30%. The drivers for this are likely to be growth in auto loans and what Pagaya describes as POS loans. As mentioned, the market for auto loans is several times the size of that for personal loans. Auto-lending is expected to be one of the major growth drivers for the company over the next couple of years. Pagaya has been deliberately conservative in regard to underwriting auto loans after some issues with credit policy as it first entered the business. While it has attracted several major loan origination partners, it has a methodical on-boarding process to obtain the requisite data it needs for its models in order to ensure that they perform optimally in terms of predicting credit outcomes. Its latest auto-lending partnership with OneMain is expected to follow a similar measured cadence. OneMain recently acquired Foursight as part of its strategy to move beyond personal lending. The hottest area for Pagaya in terms of growth opportunities is that of what it describes as POS lending. POS is essentially another name for buy now/pay later lending. As banks and FIs have seen the rapid growth of this channel which is, in part, replacing revolving credit card debt, they are looking to launch their own offering in this area. The key technology that they need is the ability to underwrite loans on-line and at checkout almost instantaneously. That is a complex process and not one that can be readily created in a reasonable time and at reasonable expense. Banks have been willing to outsource this requirement, and it is likely to become a significant component of Pagaya's business and should result in a significant expansion of Pagaya's network volume in 2025 and beyond. Pagaya has some experience with this type of underwriting. It has been Klarna's partner in evaluating the BN/PL loans that have been offered by that company. Klarna is actually a fairly large BN/PL company with a significant US presence and 37 million customers (150 million worldwide). It has become a fairly substantial partner for Pagaya with loan originations from Klarna doubling year over year from that partner in the latest quarter. The Elavon POS partnership is set to go live in Q4 of this year, with a focus on larger ticket sizes and longer duration loans. The company is currently onboarding an additional top 5 bank to its POS network, and it has become the exclusive partner for POS lending as part of the Mastercard Engage program. Pagaya has estimated that POS lending can become 30%+ of its business over the next few years. The company has a variety of additional offerings that are being developed or have recently rolled out. Probably most important of these is its pre-screen products that allow exiting end-user customers to obtain credit offers that are pre-approved for funding by Pagaya. Understanding the Pagaya business model Pagaya's business model is a bit more complex than other fintech companies. The key metric in the model is that of FRLPC. An illustrative chart outlining the company's economics is illustrated on pg. 27 of the company's Pagaya 101 presentation. As mentioned, the company is currently converting about 0.8% of consumer application into loans. Last quarter, the company's take rate on accepted loan applications reached a record of more than 10%. The take rate varies with the source of the application, the size of loan and which kind of loan is being accepted. Production costs are the expenses of actually incurred as incremental costs for processing an application. This in turn leads to FRLPC. At one time, Pagaya was getting most of its income from the fees it charged its funding partners for packaging loans. This has changed dramatically over the last two years, and last quarter the fees the company earned from its lending partners were 69% of total fee revenue. As Pagaya diversifies its capital sources and relies less on the ABS market, it is likely that fee revenue from lending partners will continue to decrease as a percentage of total fee revenue. For example, the Castlelake forward flow agreement, almost by definition, has no fees that Castlelake pays to Pagaya. As mentioned, the FRLPC percentage has growth over the last year from 3.3% to 4.2%. This is mainly a function of the maturity of the company's personal lending product, where there are few incremental costs in underwriting additional loan volume. FRLPC is going to fluctuate; specifically as the POS product ramps with volume coming from new partner beyond Klarna, the on-boarding process will require significant investments. In the short term, however, higher FRLPC margins have enabled strong gains in adjusted EBITDA margins and have been the principle factor in the company raising its adjusted EBITDA forecast Competition There are loads of companies who compete for the personal loan and auto loan business. It would be tiresome and not particularly useful to list all of those. I think the comparison that will be considered by most investors is with Upstart (UPST), the shooting star of 2021. Pagaya, as this article suggests, has several material differences when compared to Upstart. The biggest difference, of course, is that it does not make loans directly to consumers-it is basically an enabler and not a lender. I suppose the other major difference is that Pagaya is profitable in terms of adjusted EBITDA and has started to generate meaningful cash flow from operations. Finally, Pagaya has had a strategy of prefunding loans; at least until now, Upstart has not been able to achieve that position which provides for substantial flexibility in terms optimizing a loan portfolio. Both companies compete somewhat directly for personal and auto loans, although the reality is that Pagaya is basically competing through enterprise level FIs and much of Upstart's loan production has come through its direct channel. Pagaya has a significant new loan channel - POS - and that is likely to be a major growth driver for several years. Upstart has not tried to enter that market, and given its other operational challenges, it seems unlikely that it will choose to do so. Both Pagaya and Upstart have some products in the market for real estate lending, but at this point neither company has made real estate lending a priority. That may well change as overall interest rates come down, and mortgage activity starts to rise from very low levels. In particular, Upstart's home equity product probably has a significant opportunity to achieve substantial volumes. Pagaya is quite a bit larger in terms of revenue and the volume of loans processed in its network. Upstart has had a lead in forward flow partnerships. It started with Castlelake, and it has now added Ares and Centerbridge. It is just now starting to use these partnerships to reduce funding loans from its own balance sheet. I am not in the position to evaluate the relative current efficacy of the models that are used by both companies to evaluate the credit worthiness of their borrowers. Obviously, Upstart's models were initially deeply flawed and led to significant credit losses during the post-Covid period. Pagaya, too, has had credit losses, but of a far lower magnitude, so it continued to have access to the ABS market and has raised been able to raise $22 billion through that channel over the course of the last couple of years. I think the AAA rating for the latest tranches of Pagaya's ABS tranches speaks for itself in terms of the efficacy of the company's models as an effective tool to forecast credit results. The CEO of Upstart has suggested that Upstart's latest models are \"leaps and bounds better than they were in 2022.\" The CEO of Pagaya uses different language to convey a similar sentiment. Overall, Pagaya has a much different strategy that is likely to produce higher percentage growth over time than compared to Upstart. Pagaya has 31 origination partners, many of which are large and well known. Upstart's loan partners are mainly credit unions of various sizes, but its largest channel is direct to consumer lending. I think the Pagaya strategy is likely to produce superior growth and is inherently more efficient than the Upstart strategy, with a strong likelihood of producing superior economics. There is no reason why Upstart, in its new incarnation with committed capital partners and more accurate models, cannot achieve a measure of success. Personal loans and auto loans are large markets with a great deal of legacy inefficiency. But the fact that on most valuation measures, Upstart is two or more times highly valued makes little sense and particularly so as Pagaya is already quite profitable in terms of its adjusted EBITDA margin and continues to grow while Upstart has yet to return to positive revenue growth. Risks to the investment thesis Fintechs overall, and Pagaya shares in particular, are seen as vulnerable to a significant economic slowdown. The concerns are that default rates will rise, and loan demand will fall off. The ARK Fintech ETF (ARKF) fell about 3.6% last week, while shares of Pagaya have fallen by more than 15% through Friday morning trading. I don't think there is much question that, overall, the labor market is softening. The JOLTS report earlier this past week depicts a situation in which job openings are declining significantly. While layoffs haven't spiked, it is just far more difficult to find a job. What does this mean for either default rates or new loan demand? Is the market reflecting a significant risk? This is another part of the script from Pagaya's COO Having said that just broadly watching the consumer firmament, we are watching it very carefully and all the macro trends. And I know that we will adapt very quickly based on the depth of data that we get across all our asset classes, across our 30 partners. So we have a pretty good read on the consumer and can act pretty quickly. I really do not have any independent insight as to the track of the ability of a broad swathe of US consumers who are considered to be subprime borrowers to repay loans. Pagaya has been more than circumspect in its loan approval process. While it is considered a subprime lender, and subprime lending has typically had difficulties in prior periods of economic contraction, my own guess is that the use of strict credit guardrails, enforced by AI technology will yield far different results in terms of default trends than the historic experience of subprime lending has been during past downturns. In that regard, not all subprime borrowers are created equal. In the case of Pagaya, the average income of its borrowers is $120k/year. As I have tried to detail in this article, the company has announced a host of new lending channels in just the past few months. Recession or not, I am not concerned that Pagaya will suffer through a period of constrained growth; if the economic landing to be experienced is moderately soft, then growth expectations for this company as expressed in the 1st Call consensus are too low. Other risks relate more to issues indigenous to Pagaya. The take rate and the FRLPC margin are near the top end of expectations. They can vary during different quarters depending on the mix of loan sources. So far, the company has announced just a single forward flow partner. It probably needs to consummate deals with 2-3 more in order to improve its capital efficiency to a level conducive to investor confidence. Pagaya shares continue to suffer to some extent because of its legacy ownership base. That has begun to change, and institutional shareholders include such well-known holders such as BlackRock, Nuveen, Susquehanna, Wells Fargo and Fidelity. Even a few long/short hedge funds such as Yarra Square Partners, an offspring of Tiger, have entered the name. But the shares are still volatile and can react strangely to news. Pagaya's Valuation Pagaya shares have had an extremely discounted valuation for a considerable time now-a valuation that is hard to reconcile with the company's actual performance and outlook. My estimate for Pagaya's 4 quarter forward revenues is $1.11 billion. That is just 11% greater than the current run rate of revenues. That estimates yields a forward EV/S of 0.8X. Using traditional cash flow metrics, the company is already generating free cash flow. I have projected a 4 quarter forward free cash flow margin of 8%; that will likely prove to be conservative since the company had an 8% operating cash flow margin last quarter and the company has forecast rising profitability in coming quarters. My CAGR estimate for Pagaya is 26%. Obviously, I think that is a floor given the growth opportunities from the new partnerships in auto and POS lending, which should mature over the next 3 years. Using those estimates, PGY shares are at a steep discount-more than 40% below average for the company's growth cohort. There are companies whose valuation is perplexing, and that can be the case for some time. The shares are still suffering from the misconceptions about subprime lending, its SPAC origins, its share price correlation with Upstart despite the significant differences between the two companies, and concerns about capital requirements and possible dilution. I am not sure just how long it will take for all of these investor misconceptions to dissipate. But Pagaya offers a combination of growth, valuation and emerging profitability that is a distinct outlier, at least in my opinion. And its 31 lending partnerships are a unique asset that is very difficult to duplicate and has yet to be recognized by investors as a foundation of a highly profitable business model. Wrapping Up: The case to buy Pagaya shares Pagaya shares are a lesser known fintech that is disrupting the consumer lending space. It has developed AI models that are providing its capital partners with excellent results. And it has proven to provide its lending partners with solutions that have allowed them to more effectively serve their own customers. Concerns about required capital are dissipating, with the company recently announcing its initial forward flow agreement and achieving an industry first AAA rating on its latest vintage of ABS. The company's profitability has taken a significant step-up with take rates and its net fee income ratio showing positive trends while operating expenses have been actually declining. Fintech is anything but the flavor of the month; investors seem to believe that macro trends will have a hugely negative impact on the space. I disagree, but that is the current sentiment in which facts can be trumped by angst. I am a patient investor-I rarely trade stocks and try to maintain a holding period that averages years and not months or quarters. I understand that with sentiment as it is, the short-term appreciation potential for Pagaya share might be capped. That said, the coming interest rate cuts could be of such a magnitude as to change sentiment substantially.  But over the coming year, I anticipate that the shares will produce significant positive alpha. They are unlikely, I believe, to be valued as they are with the company's improving profitability, its new-found access to efficient sources of capital, and the many new partnerships the company has recently forged.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2466100200"}