Why Open Lending Stock Was Down 19.2% This Week

What happened

Open Lending (NASDAQ:LPRO) had a rough week, as its stock price plunged 19.2% this week, as of noon ET on Friday, according to S&P Global Market Intelligence. The stock price had been down as much as 22.5% during the week. As of Friday at noon ET, it was trading at about $8.27 per share, up 22.5% year to date.

The markets were mixed this week, as the S&P 500 was down 0.5%, the Dow Jones Industrial Average was up 0.5%, and the Nasdaq Composite dropped 2.1% as of noon ET on Friday.

So what

Open Lending offers automated lending services to banks and financial institutions that provide auto loans. Among its services are loan analytics, risk modeling, default insurance, automated decision technology, and risk-based pricing that helps lenders generate profitable loans. Its focus is to help lenders serve non-prime or underserved borrowers. It makes money from the lenders from both fees on the loans it facilitates and a cut of the underwriting profit.

Open Lendingʻs woes this week stemmed from its second-quarter earnings report, which was released on Aug. 8. It posted revenue of $38 million on 34,354 facilitated certified loans in the quarter. That was down from revenue of $52 million on 44,531 facilitated loans in the second quarter of 2022. Net income in the quarter was down 51% to $11.4 million, or $0.09 per share, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 39% year over year to $20.7 million.

Revenue beat consensus estimates, while the earnings were in line with expectations.

Now what

Open Lending also released its outlook for the third quarter, and the numbers were projected to be down.

The expectation for total certified loans facilitated was in the range of 26,000 to 30,000, which would be lower than it was in the second quarter. Revenue was anticipated to be between $29 million and $34 million, while the adjusted EBITDA was projected to be between $13 million and $17 million. These projected totals would also be down from Q2.

Even with the sell-off, Open Lending still seems a bit overvalued, with a price-to-earnings (P/E) ratio of around 23, up from 13 on March 31 and 8 at the start of the year.

However, the stock shows long-term promise, as it targets an underserved niche of non-prime borrowers, and it has a high-margin business model. As the economy and auto market continue to improve, so should the performance of this stock.

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Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.