In the investment world, it’s rare to find a company with an undervalued stock price, in an emerging sector, fundamental strength and top rated analysts all supporting a positive move. Usually its a shady promoter cherry picking data and sending 15 emails a week about how “You’re about to miss out of 2018’s biggest move!”. Yeah yeah, you sad that last week..
It looks like this could be the perfect storm for Mogo Finance Technology Inc. (NASDAQ:MOGO) with 4 wall street analysts putting price targets north of 80% on the Canadian fin-tech company.
“4 Wall Street analysts have issued ratings and price targets for Mogo Finance Technology in the last 12 months. Their average twelve-month price target is C$7.81, suggesting that the stock has a possible upside of 89.16%. The high price target for MOGO is C$10.00 and the low price target for MOGO is C$7.00. There are currently 1 hold rating and 3 buy ratings for the stock, resulting in a consensus rating of “Buy.”” – MarketBeat
BMO, Eight Capital, Mackie Research and Craig Hallum have all weighed, measured and found Mogo undervalued. Many writers have covered this fact but we wanted to give a more in depth look into why these trusted analysts have all come to the same conclusion.
Then & Now
Mogo Finance Technologies Inc. is a Vancouver based fin-tech company, was founded in 2003 and built their legacy on short term lending, AKA. pay-day-loans. Mogo expanded their product offerings to identity fraud protection and credit score viewing through Equifax. More recently Mogo has added mortgages & Visa Debit cards. In October of 2017 Mogo announced they would be adding capability to buy and sell Bitcoin. Since then, Mogo has been associated with cryptocurrencies. When crypto was booming, so was the stock price. Unfortunately for Mogo the opposite is also true; 2018 has been brutal with the stock dropping more than 50% since it’s highs in December of 2017.
Mogo has also struggled to shake the mantle of their legacy business, pay-day-loans, despite revenue from their newer innovations exceeding their lending business as reported in the Q3 financials last month.
“It was another very strong quarter financially for Mogo, as total revenue increased by 23%, despite exiting the short-term lending business this quarter as planned,” said Greg Feller, President & CFO. “The true strength of our results is reflected in core revenue growth of 80% – accelerating from 64% in Q2 – which was again led by subscription and services revenue growth of 111% based on our continued success with MogoProtect and our premium subscription services. This high-margin revenue stream is now at a quarterly run rate of almost $8 million and represents more than 50% of our total revenue. Our growing ecosystem of products also enabled us to increase the rate at which we are monetizing our member base, which drove a 23% increase in our Core average revenue per member.” – Mogo Third Quarter Financials
Increased total revenue, increased core revenue, increase in rate of monetizing user base all while pivoting their core business; that’s impressive. Couple that with 45% user growth in the last 12 months, positive cash holdings, nine consecutive quarters of positive adjusted EBITDA and six consecutive quarters of accelerating core revenue growth. It’s no wonder these analysts are excited.
The other side of the banking industry is digital wealth management services. The trend occurring in the fin-tech world at the moment is Banking 2.0; the digitization of banking services and it’s one of the hottest sectors for venture capital in 2018. These Neo-Banks are beating the traditional banks at their own game by eliminating fees, facilitating instant cross-border transactions and providing a user experience that is far superior to their 20th century incumbents.
Millennials and Gen-Y aren’t turning to the traditional sources of investment advice. An influx of app driven investment services and online wealth platforms has people looking to their phones for information on where to put their money. Acorns, a fin-tech company founded in 2014, allows users to invest in an array of different asset classes and instruments and has seen huge success; almost 4,000,000 users worth. Acorns allows individuals to round up purchases and invest the difference in a portfolio of their choosing.
Robinhood is another example of a financial services company gathering huge interest. Launched in 2013, Robinhood allows users to invest in stocks and ETF’s through a simple mobile app with no commissions. By 2018 Robinhood had grown to 3,000,000 users; around the same number as E-Trade which was started more than 20 years earlier. Wealthsimple is a Canadian investment management service which has over $1.9 Billion CAD under management. An impressive feat after only 4 years since lift off. And they’re not the only Canadian company with a forward thinking approach to finance.
Mogo recently announced the newest member of the family, MogoWealth. This product will provide users with investment management offerings such as mutual funds and ETF’s. MogoWealth will follow the companies best-in-class approach to products and services. This means MogoWealth does all the heavy lifting. Users will receive the best available rates, fees and commissions on any instrument or asset the company offers. Leveraging their user base provides Mogo with more bidding power to partner with providers of financial products. MogoWealth is another example of the companies responsiveness to market trend and forward looking attitude towards business innovation.
Back to Wall Street
A key point highlighted by all 4 analysts is the shift towards service and subscription based revenue. It is expected that Mogo will continue to grow in this area, MogoWealth being another example of this. Companies like Netflix (NASDAQ: NFLX) have led the way in the shift to subscription services. Even automotive manufactures like Audi, BMW and Mercedes are adopting the new revenue model and transitioning to subscription.
Craig Hallum “quarter is an early demonstration of management’s ability to monetize their user base”.
Eight Capital state that “Mogo trades at 2x F19 net revenue, while our target price of $10/share implies 4.5 x F19E net revenue (i.e. total revenue less funding interest), near the mid -point of the fin-tech peer group range, justified by improving platform monetization and roll-out of new products.”; price multiples being a topic we’ve covered before.
BMO Capital are “encouraged by the strong uptake on existing products, and believe the shift towards more capital-light, recurring revenue sources will begin to resonate with investors.”
It’s clear that there is massive opportunity in this sector moving forward. People are tired of traditional banks and innovation is in full swing from the best & brightest in the startup world. Surprisingly, one of the most progressive countries in the world is a laggard when it comes to next-gen financial service apps. Canada has statistically low adoption; 18% compared with the global average of 33% and 69% in China. – EY FinTech Adoption Index 2017
This stat alone shows why Mogo has huge upside. With over 711,000 users Mogo already has almost 2% of the country’s population signed up and show no signs of slowing down.
Disclaimer: Mogo is a paid client of High Energy Trading, click here to read full disclosure.
High Energy Trading is not a licensed broker-dealer, market maker, investment advisor, or underwriter. All information that we provide is for informational purposes only and should not be construed as an offer or solicitation of an offer to buy or sell securities.