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This FinTech Stock Is Like Buying Square At $13

Companies / Tech Stocks May 08, 2019 - 09:06 AM GMT

By: Submissions

Companies We all know names like PayPal (NASDAQ: PYPL market cap: $131 billion) or Square (NYSE: SQ market cap: $29 billion). Sure, these stocks present an opportunity, even at these levels, but imagine getting Square at under $13 per share or Paypal in the low $30s. You would have earned returns in multiples.

While these types of opportunities are long behind us when it comes to PayPal and Square, there are a few plays in the FinTech sector that are just starting to heat up. In my opinion, one Canadian FinTech player has the potential to be one of these opportunities in the future.

Mogo Finance Technology Inc (NASDAQ: MOGO)

PayPal had the benefit of being one of the first to the FinTech space in the United States, as was the case for Intuit (NASDAQ: INTU), and other big players. However, what we would call big players have yet to emerge in Canada. At the end of the day, FinTech adoption in the region has been relatively slow, with the country ranking in the bottom three among other developed nations.

Nonetheless, we’re starting to see adoption of financial technologies picking up in the region. In fact, we’re seeing emerging market-like activity in the region with adoption rates gaining in multiples. As such, those on the leading edge of this trend are likely to take the lion’s share of the market later.

This is where Mogo, or Money-On-the-GO, comes in. The company is no stranger to the FinTech space, often being referred to as a pioneer. As a result of its early entrance in Canadian FinTech, the company already has a sizeable advantage over its competition and is now providing services to more than 800,000 members. These users take advantage of various products offered through its app, including finance management, banking services, lending services, cryptocurrency wallets and more.

Moreover, experts are expecting that this growth will continue. Zachs just issued a report covering Mogo and suggesting that the stock is actually worth US$7.67 per share as it sits. Craig-Hallum, a noted analyst known for accurate opinions in FinTech, recently set a price target of US$7 per share on the stock.

So, what’s driving the strong analyst opinions? The fact that the stock is highly undervalued. When compared to its American and European counterparts, the stock is trading at a fraction per user than what we see across the space. Chime and N26 currently trade at a rate of $500 and $1,175 per member, respectively. With an implied per member valuation of approximately $125 today, Mogo currently trades at a 75% to 90% discount to its American and European peers.

To really put Mogo’s valuation into perspective here, all you have to do is take a look at another public Canadian fintech, Lightspeed (TSX: LSPD).  The newly public company currently has a market cap of around $1.7 billion which is about 18x greater then Mogo’s current market cap of around $90 million.  However, when you compare Lightspeed and Mogo’s recent financial results, the two companies look more closely aligned.  Specifically, in the two companies most recently reported quarter (Q4 2018), Lightspeed’s revenue was C$20.1 million compared to Mogo’s C$16.1 million while Lightspeed’s year over year revenue growth was about 34% compared to Mogo’s core revenue growth of about 74%.

Another good example of the company’s undervaluation comes from an Australian FinTech player known as Afterpay (OTCMKTS: AFTPF market cap: $4.6 billion). Essentially, Afterpay allows its users to shop online for items now, and puts them on an installment plan, allowing them to make small monthly payments until the balance is paid off.

Afterpay has started to take of in Australia as a result of its no-fee business model. To earn its revenue, Afterpay charges retailers a flat fee plus a percentage of the purchase each time an item is purchased using their installment plans. This allows Afterpay to earn revenue while providing installment loans that are free of any fees, including interest charges.

However, Afterpay does generate about 17% of its revenue from customers. This comes from late fees when installment loans are missed. Nonetheless, consumers enjoy the ability to make online purchases with zero-fee loans, leading to more than 2 million users on the platform as of July 2018.

Afterpay’s market valuation is currently around $4 billion which is about 11x what analysts are currently projecting for their 2020 revenue.  This compares to Mogo’s current market valuation of around $90 million which is less then 2x what analysts are currently projecting for Mogo’s 2020 revenue.

Moving forward, the opportunity is only likely to grow. Not only are we seeing incredible growth in adoption of FinTech options in Canada, Mogo is staying on top of the trend. The company is constantly adding new capabilities, listing to its customers and providing solutions tailored to them. Mogo’s freemium model, which allow its members to opt into its subscription fee services, make the company a disruptive force in the Canadian banking industry which is known for charging high customer fees even for products most consumers now expect for free like a basic checking account.

All in all, Mogo is operating in an emerging Canadian FinTech market and doing so with compounding success. The company is seeing strong growth as millenials look for faster and more cost efficient alternatives to high-cost traditional banking. This, combined with the company’s early leadership, continued innovation, and its recently announced acquisition of Difference Capital (TSX: DCF), suggests that the recent gains that we’ve seen from the stock are just the tip of the Iceberg.

The Takeaway

The takeaway here is a simple one. The FinTech sector is starting to heat up in Canada, where adoption has been slow, but is growing in multiples as of late. Mogo is a leader in this space with very few competitors to contend with. When comparing the company to other FinTech players in Canada and abroad, it becomes clear that the stock is highly undervalued. This clear undervaluation combined with the company’s leadership position in Canada suggests that we could see incredibly strong gains ahead.

This article was written by Joshua Rodriguez, founder of CNA Finance. View all relevant disclosures and disclaimers at

By Joshua Rodriguez

© 2019 Copyright Joshua Rodriguez - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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