GreenSky LLC: Is This $5.50 Fintech Stock a Bargain?
This Low-Priced Stock Deserves a Look
The technology sector is never short of soaring tickers. But as history has shown plenty of times, big swings can come in both directions. There is always risk associated with even the hottest tech stocks, especially if you buy them after they have shot through the roof.
There’s also an argument that tech stocks have bloated valuations. A tech company may generate very little current revenue—and in some cases, no revenue at all—yet they may support a market capitalization in the billions of dollars.
I know, investors are forward-looking. But if you don’t like risk, it’s a good idea to also take a look at companies with not-so-bloated valuations.
With that in mind, let’s check out GreenSky LLC (NASDAQ:GSKY).
Headquartered in Atlanta, GreenSky has a proprietary platform that offers mobile, online, and in-store point-of-sale financing. The platform helps drive value for three groups: merchants, consumers, and banks.
For instance, if a consumer wants to make a large purchase for a home improvement project, they can apply for a loan through GreenSky’s platform at the point of sale and get approval results in real time. The loan is then matched to one of GreenSky’s bank partners.
This business is quite lucrative. Merchants have to pay the company a transaction fee every time they facilitate a transaction using GreenSky’s platform. In the first quarter of 2020, the average transaction fee was 6.55% of the transaction volume. (Source: “Morgan Stanley Virtual US Financial Conference,” GreenSky LLC, June 9, 2020.)
While the fee is not insubstantial, merchants are willing to pay it because GreenSky’s platform can help them close high-dollar deals. As of March 31, nearly 18,000 home improvement merchants and elective healthcare providers were using the company’s platform.
Transaction fees are currently the biggest source of revenue for the company (74% in the first quarter). Other than charging transaction fees from merchants, GreenSky also makes money by servicing loans for its bank partners. Servicing and other fees accounted for the remaining 26% of the company’s total revenue in the first quarter.
While GSKY stock is not exactly a well-known ticker, the financial technology (fintech) company has delivered some very impressive growth rates. Consider that, in 2016, GreenSky LLC generated $264.0 million in total revenue. By 2019, the company’s top-line number had more than doubled to $530.0 million.
Despite the outbreak of COVID-19, GreenSky’s financial growth continued in the first quarter of this year.
For the quarter, the company generated $121.2 million of revenue, representing a 17% increase year-over-year. This was driven by a seven percent increase in transaction fees and a 59% increase in servicing fees and other revenue. (Source: “GreenSky, Inc. Reports First Quarter 2020 Financial Results,” GreenSky LLC, May 11, 2020.)
Notably, transaction volume on the company’s technology platform rose 10% year-over-year to $1.4 billion for the quarter.
Ultimately, because the COVID-19 pandemic began disrupting business activity in mid-March, second-quarter results could see a much bigger impact for most companies.
However, the neat thing here is that, trading at about $5.50 apiece, GreenSky LLC has a market capitalization of $997.0 million, which is less than twice the company’s last-reported annual revenue.
In the bloated tech world, it’s not every day that you see a fast-growing business with such a low price-to-sales ratio. This kind of valuation not only creates a margin of safety, but could also lead to material upside for GSKY stock if the company continues to deliver solid growth numbers.