Intuit (NASDAQ: INTU) is a household name with a market cap of more than $60 billion. Ten years ago, the stock was trading at just $25 per share. Today, it trades at more than $250, offering investors nearly ten times their investment dollars over the past ten years.
We’ve seen similar stories out of other large fintech players. For example, PayPal (NASDAQ: PYPL) currently trades with a market cap of more than $120 billion. In the past four years the stock has climbed from under $35 per share to nearly $110, representing more than 3x in gains.
Square (NYSE: SQ) traded at under $13 per share in 2015. Today, the stock trades at more than $66 per share with a market cap of nearly $30 billion. There are plenty more examples that we could go over. At the end of the day, opportunity in the FinTech space has been plentiful, and will likely continue to be.
So, what’s the next big opportunity in FinTech? While there are plenty of options to choose from, in my opinion, the stock that provides the largest opportunity in the space at the moment is Mogo Finance Technology (NASDAQ: MOGO | TSX: MOGO).
What Is Mogo
Mogo is part of the emerging wave of digital challenger banking platforms that are leading the charge of disrupting the traditional brick and mortar banks as the next generation of consumers (millennials and gen z) look for a fully digital and mobile first solution to manage their financial lives.
The Mogo app provides members with a spend card that allows them to easily track spending. Members also have access to budgeting tools, lending, cryptocurrency markets and more.
It’s also worth mentioning that the app is consistently growing. In fact, the continued innovation and new services that come on line is one of the reasons for an incredibly positive opinion about the stock from Craig Hallum that suggests that the stock could get to US$19 per share by 2021. With a current price of just under $4 per share, the analyst sees the potential for gains of almost 5x.
Mogo’s Valuation Is Highly Discounted
Comparing Mogo’s valuation to that of its peers, it’s easy to see that the value of the company is highly discounted at the moment. United States and European peers like Chime and N26 were recently valued privately at $500 and $1,175 per member, respectively. Considering Mogo’s market cap today, it trades with a per member valuation of around $125. That a significant 75% to 90% discount in comparison.
Afterpay (OTCMKTS: AFTPF) currently trades with a market cap of $4.6 billion. At this market cap, the company is currently trading at around 11x what analysts are projecting for 2020 revenues. With a market cap of around $90 million, MOGO is trading below 2x 2020 projected revenues.
However, to get a real sense of the undervaluation here, it’s important to look at a Canadian peer. In Canada, Lightspeed (TSX: LSPD) trades with a market cap around $1.7 billion. That’s about 18 times the market cap at Mogo. In the most recent quarters, Mogo generated $16.4 million compared to Lightspeed’s $20.1 million. Moreover, Mogo grew revenue at a rate of 57%, while Lightspeed’s revenue growth rate was almost half that.
All in all, when peer valuations are taken into consideration, the potential opportunity provided by Mogo becomes very clear.
A Leadership Position That’s Unmatched In A Growing Canadian Market
Uptake of financial technologies in Canada has been relatively slow. In fact, the country ranks among the bottom three in terms of FinTech adoption in developed nations. While uptake was slow in the beginning, as millennials search for more intuitive solutions to finance, we are seeing incredible growth in adoption in the region. This is opening the door to an emerging FinTech market in Canada.
Mogo is uniquely positioned to take a large share of the FinTech market in the region. Founded in the early 2000s, the company is considered to be one of the pioneers of the Canadian FinTech industry, and is already being referred to as a leader. In fact, the company currently has well over 800,000 members, with some analysts projecting that the company will reach more than a million and a half members within the next few years.
Not to mention, the field in the Canadian FinTech space is relatively clear of competition. While there are thousands of players in the space in the United States, with hundreds proving to be successful in penetrating the market, there are less than 100 FinTechs in Canada and less than half a dozen that operate at a scale anywhere close to that of Mogo.
Analysts Have Incredibly Positive Opinions
I’m not the only person that sees strong potential in Mogo. In fact, analysts seem to love the stock. As mentioned above, Craig Hallum, a leading analyst in the United States recommends the stock with a price target at US$7 per share. Moreover, the firm believes that the stock could climb to US$19 per share in the next couple of years.
Most recently, Zacks weighed in on the stock, saying that mogo is a “digital challenger banking on models that are taking on the legacy banks who’s legacy products and business models still rely on high fees and a clunky consumer experience” and setting a price target of US$7.67 per share.
These are just two of many analysts that have weighed in on the stock, all with buy or strong buy ratings and with price targets that suggest the potential for gains in multiples ahead.
The Difference Capital Acquisition Serves To Expand The Opportunity
Recently, Mogo announced the acquisition of Difference Capital. The transaction comes at a net cost of about 3.1 million shares, which at today’s value is about $10 million. Considering what the company is bringing through the doors at this rate, the acquisition comes at a significant discount.
In fact, once the acquisition is complete, Difference will bring with it about C$34 million in cash and monetizable assets. This will bolster Mogo’s balance sheet, making it completely financially self sufficient.
All in all, Mogo is in the position today that Intuit was in back in the early 1990s. The company has a great product that is unmatched by its peers. Moreover, the company is in the right place at the right time with Canadian FinTech uptake on the rise. Considering the company’s leadership position in the space, highly discounted valuation, and the strong financial position to come with the close of the Difference Capital transaction, Mogo could follow along the lines of the blue chip FinTechs of today.
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