While we acknowledge certain risks associated with subprime lending (read the risks section below), for reasons already discussed, we think OPFI deserves to trade at a higher valuation multiple than the non-fintech, slow growing lenders from which it is very likely to continue taking market share.
Given that we project 20% annual EPS growth for OPFI from 2021 through 2023, we suggest $12 as a baseline 12 month price target. We derive $12 by applying a 20x multiple to $0.99, the average of our 2022 and 2023 EPS estimates, and then applying a 40% discount due to anticipated dilution (read the risks section below).
Our bull case, assumes OPFI generates higher-than-expected origination and EBITDA growth and market perception substantially changes such that OPFI commands an even higher valuation multiple, more in-line with fintech players. With a matching its top-line growth rate, OPFI could trade as high as $25, 40x multiple to $0.99 that is discounted by 40% for dilution. Conversely, we think there is downside to our price target if origination growth is slower than expected or new state or federal laws cap the interest rates that OPFI can charge customers. Therefore, our bear case would be $5, representing 5x to $0.99 and no dilution discount as potential dilutive shares (and warrants) would be worthless.