Mogo Finance Technology Inc. (NASDAQ: MOGO) recently caught our attention after announcing merger news. In the release, the company said that it signed a definitive agreement to merge with Difference Capital. While the news sent the stock climbing, I believe that there is plenty more value to tap into here. Today, we’ll talk about:
- What MOGO is;
- why I believe that the stock is highly undervalued;
- what analysts are saying about the stock; and
- The potential opportunity that the stock represents.
What Is MOGO
Mogo Finance Technology is a company that operates in the Canadian fintech space. Ultimately, the company’s product is a mix of what we see from Credit Karma (PRIVATE: KARMA), Square (NYSE:SQ), Coinbase and LifeLock (acquired by Symantec NASDAQ:SYMC).
The company’s app, known simply as Mogo, gives users in Canada access to free credit scores, a spend card that allows them to track their purchases, and access to the cryptocurrency market without the convolution generally involved in the cryptocurrency space.
Moreover, the company also offers hassle free lending, identity theft protection, budgeting tips, and more. Ultimately, MOGO designed its app to be a one-stop shop for all of the basics in personal finance, and it has done an incredible job in doing so.
Why The Stock Is Highly Undervalued
As mentioned above, it’s my belief that MOGO stock is significantly undervalued. Ultimately, there are several reasons that I believe this both from a flat valuation perspective and from a fundamental perspective. Here’s how I see it…
Mogo’s Valuation Makes No Sense
As investors, we often trust that the market has a way of assigning proper valuations. However, the truth of the matter is that there are several undervalued gems out there, and I believe that Mogo Finance Technology is one of them.
One of the big reasons for this is that when you compare the company’s valuation to its closest competitors, we see a bit of a trend. Take a look at the chart below:
In the chart above, you can see that the market is currently only valuing Mogo at a rate of about $75 per member. However, similar companies, Chime, a United States Challenger recently raised $200 million at a valuation of $1.5 billion. This places a value per member on the company in the amount of $500. N26, a challenger from Europe recently raised $300 million at a $2.7 billion valuation, leading to a value of $1,174 per member. Finally, Monzo, a UK competitor, recently raised funds at a $1.3 billion valuation, working out to a value per member of $1,623.
Looking at this data, it’s easy to see that with more than 800,000 members at a value of only $75 per member, MOGO is highly undervalued. However, this is just the beginning.
Valuation From A Fundamental Perspective
Interestingly, Canada is lagging the world when it comes to fintech. In fact, only 18% of Canadians have used two fintech products in the past 6 months. The global average is about double that. A big part of the reason for this is the lack of options in the Canadian fintech space. Ultimately, this means that Mogo Finance Technology has few competitors to contend with.
Moreover, there is a growing population of millennials that are demanding digital financial solutions. With a banking sector that’s ripe for disruption and no other option on the market offering a consolidated digital financial management experience, MOGO is well positioned to take the market by storm.
The opportunity here is hard to ignore. Sure, Canada’s market is about 10% the size of that in the United States for this type of product. However, when you look at the fact that the United States has more than 4,000 fintech companies and Canada has about 160, you can see that the potential for MOGO to take a lion’s share of the multi trillion-dollar market in Canada is real. The top 5 banks in Canada have had an oligopoly for the past 100 years and as a result they have the highest fees in the western world (a basic chequing account averages $15/month in Canada), creating a significant opportunity for Mogo’s freemium model and product offering.
For those who think Canada’s market is too small, Canadian banks will make $100 billion in pre-tax profit this year (that’s profit, not revenue) and the market has already seen one successful new entrant sell for a multi-billion valuation – ING Direct started in Canada and grew to 1.8 million customers before it was sold to Scotiabank for CAD$3.1 billion.
Ultimately, from a fundamental standpoint, the company is the ONLY one in its market that offers a comprehensive option to millennials that are demanding digital control over their finances. With growing use of fintech products in the region, an offering that’s unmatched, and little competition to contend with, MOGO is well-positioned to see rapid expansion throughout the Canadian market.
What Analysts Are Saying About MOGO
The truth of the matter is that I’m not the only one that sees incredible value in Mogo. So far, six analysts from the United States and Canada have weighed in on the stock. All of these analysts have set price targets that represent potential growth in multiples ahead. However, the report that I found to be most important for MOGO came from Craig-Hallum Capital Group LLC.
Before we get into what the firm said about the company, it’s important that you understand just who Craig-Hallum Capital is. Their fintech analyst is one of the most well-respected analysts on Wall Street today. Moreover, Craig-Hallum is known for strong calls in the fintech space. The analysts at the firm have issued compelling reports on Green Dot, Bottomline Technologies (NASDAQ: EPAY), and PayPal (NASDAQ: PYPL).
With that said, Craig-Hallum has an incredibly bullish opinion when it comes to MOGO. In fact, the firm currently rates the stock as a Buy with a 12 month price target of US$7 per share and its initiating coverage report dated September 2018 articulated how Mogo could reach US$19 per share. Considering the current price per share of under $3, this price target represents the potential for well over 100% in gains. Here are a few key points from the Craig-Hallum research report on MOGO:
- Revenue Growth – First and foremost, the analysts involved in the report pointed to the company’s platform revenue growth rate, which currently sits at around 60%. This segment accounts for approximately half of the company’s revenue. The rest of the revenue comes from the Mogo Loan department and interest revenue.
- Freemium – At the moment, banks in Canada charge between $4 and $30 per month for basic checking account services. Craig-Hallum believes that the freemium model that gives consumers access to many of these services without cost will lead to a disruption in the Canadian banking space.
- Potential Growth – Finally, Craig-Hallum sees MOGO revenue having the potential to grow to CA$900 million (US$672.75 million) by the year 2021, which could result in the stock trading at more than $18 per share by the end of the same year.
This Opportunity Is Hard To Ignore
The bottom line here is simple. Canadian fintech companies have offered consumers little by way of money management platforms, while millennials in the region are hungry for solutions. Not only does MOGO offer a great solution, but the company’s platform is second to none with regard to features offered to consumers.
At the same time, the company is highly undervalued when compared to its peers in the space. With other companies in the space having valuations that are far higher while displaying similar metrics with regard to users, similar or even less revenue, and meager revenue growth, MOGO seems to be a top-pick in the Canadian fintech space, and I believe it has incredible potential to generate strong profits for investors!