Today we have a speculative idea: take shares of the manufacturer of software for car dealers Open Lending (NASDAQ: LPRO), in order to make money on the expected growth of the company's business.
Growth potential and validity: 20% behind 14 Months; 11% per year for 15 years.
Why stocks can go up: there is a strong demand for the company's software.
How do we act: we take shares now by 30,67 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
LPRO makes software for risk analysis in the issuance of auto loans.
LPRO Clients - Financial Institutions and Auto Loan Departments, car dealers and car manufacturers. According to the company's annual report, her earnings are divided as follows:
- LPRO commission for using its software from companies, issuing loans, — 40,4%.
- Profit Sharing - 55,46%. In this case, LPRO provides services to the insured or lender in exchange for a share of the profits..
- Processing of insured events — 4,14%.
The company operates only in the USA.
Arguments in favor of the company
Fell down. Since June of this year, LPRO shares have fallen in price by almost 28%: from 42.44 to 30,64 $. Given the positives, we can hope for a rebound.
Niche solution. The company serves the IT needs of one of the most offline industries - auto sales. You can expect, that the demand for its services will grow more and more. For insurers and lenders, this software allows them to squeeze more profit out of their own extremely low-margin business - so LPRO has a favorable environment for years to come..
Good report. LPRO recently released a good report, where there is as revenue growth, so did the profits. This can be considered an indirect confirmation of the correctness of the thesis about the prospects of LPRO.
Can buy. In absolute terms, the company is not very expensive: capitalization $ 3.87 billion, - so I think, that it may well be bought by large appraisers like Marsh & McLennan or Aon. Moreover, LPRO is profitable, and the benefits of her services are obvious to everyone.
What can get in the way
Price. The company itself estimates the volume of the target market at $14.4 billion - while it occupies 0,83%, although it costs like 13,48%.
It is also important to understand, what a real P / E of the company is approximately 40, because she made money this year on a one-time tax optimization, - this is not the most modest assessment. P / S she has about 16, which is also a lot.
Overall, the company doesn't look terribly overpriced., but still her quotes can shake. On the other hand, for a fast-growing IT business, the company is inexpensive.
This is SPAC. LPRO went public by merging with SPAC. And as we know from our SPAC review, such an origin can hide a lot of unpleasant.
Concentration. According to the latest LPRO report, three unnamed insurer partners account for 65% her proceeds. Reviewing the relationship with one of them may negatively affect her reporting..
Hide and seek. It's hard to understand now, how much the company's business depends on the economic situation in the United States. On the one side, all market players have an incentive to accept such decisions, regardless of external circumstances: it corny helps them squeeze more margin out of their business. Strictly speaking, recessions should push car market participants to invest in software.
On the other hand, Falling demand for US car purchases could negatively impact LPRO's financial performance growth. Right now, the company's reporting may be affected by a drop in sales in the United States due to a shortage of these very cars.. However, This has not yet been reflected in the published report..
IT, IT, IT. Probably, companies will have to spend on expansion. Now the cost of programmers' labor is actively growing and inadequate prices have been established for many startups - all this involves large expenses.
What's the bottom line?
You can take shares now on 30,64 $. And then there are two options:
- waiting for growth until 37 $. Think, we can wait for next 14 Months;
- we hold the following shares 15 years, to see, how the company will become Adobe from the world of auto loans.
Keep in mind, that the idea is quite volatile.
