A Prudent Alternative in Lending

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It is a truth universally acknowledged, amongst those engaged in the pursuit of advantageous investments, that a favoured stock must, in time, become subject to a degree of enthusiastic, and perhaps excessive, valuation. SoFi Technologies, a name much spoken of in recent months, has certainly enjoyed a period of considerable favour. Indeed, its gains have been sufficient to elicit the admiration – and envy – of many a cautious investor. Yet, one cannot help but observe that its present price reflects an optimism that may, in the long run, prove rather burdensome.

Whilst SoFi continues to attract attention, a discerning mind might reasonably inquire whether there exist other opportunities, businesses of a similar character, yet offered at a more equitable price. To secure a substantial return without incurring undue risk is, after all, the very essence of prudent investment.

A Lender of Respectable Standing

LendingClub, a company engaged in the provision of personal loans – particularly those designed to consolidate existing debts – presents itself as a worthy object of consideration. It has, with commendable diligence, extended its operations to encompass purchase finance, offering credit for elective medical and dental procedures. Moreover, it displays a judicious ambition to enter the realm of home improvement loans, a market not without its allure.

Much like SoFi, and with a history preceding it, LendingClub elected, in the year 2021, to acquire a banking charter, a decision which has proven to be of considerable benefit. Following a period of refinement – a meticulous adjustment of its deposit platform and technological infrastructure – the company has begun to demonstrate a pleasing acceleration in its earnings. It is a transformation not to be lightly regarded.

In the past year, LendingClub reported earnings of 45 cents per share, a figure which, in the subsequent period, experienced a remarkable increase of 154%, reaching $1.15 per share. Current projections suggest a further increase to between $1.65 and $1.80, a prospect which, if realized, would represent a most satisfactory advance.

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The management of LendingClub, with a commendable degree of clarity, has recently undertaken a simplification of its accounting practices. Previously, the company employed a variety of methods in the treatment of its loans, a complexity which, it is to be hoped, may have presented a challenge to those less familiar with the intricacies of financial reporting. The loans were held on the balance sheet, sold immediately, or seasoned before sale. This created a rather convoluted picture.

Now, all loans will be accounted for using the fair value option, a change which promises to enhance transparency and facilitate a more accurate assessment of the company’s performance. It is a decision that reflects a desire for clarity and a recognition of the importance of maintaining the confidence of investors.

Looking Forward: Increasing Returns and Bridging the Valuation Gap

With a streamlined accounting approach and a platform well-positioned for growth, LendingClub’s management is focused on elevating returns, primarily through an increase in loan originations. In the past year, the company achieved an annual run rate of $10 billion. Current guidance suggests an increase to $12.1 billion, with the possibility of reaching $12.6 billion. A most promising outlook, indeed.

Management has articulated a medium-term goal of reaching $18 billion to $22 billion in originations, accompanied by a return on tangible common equity (ROTCE) of 18% to 20%. Currently, the company generates a ROTCE of approximately 12% to 13%. A considerable improvement, if achieved, would undoubtedly be well-received.

It is, of course, to be acknowledged that LendingClub and SoFi are not precisely the same. SoFi offers a broader range of financial services, and possesses a bank technology division. The market has, accordingly, assigned it a higher valuation. Yet, LendingClub trades at a considerably lower multiple – less than 10 times forward earnings and 1.8 times forward revenue. Furthermore, analysts anticipate earnings of $2.40 per share in 2027, representing a further increase of 40%.

The personal lending sector, however, is not without its inherent risks. An economic downturn could lead to a deterioration in consumer credit, potentially causing a reluctance amongst loan purchasers. Rising interest rates could also increase the cost of capital, necessitating higher returns. A disruption in the private credit market could prove problematic, too.

Currently trading around $15.20 per share, LendingClub presents a strong potential for appreciation. Should the market recognize the company’s ability to generate $2.40 in earnings per share by 2027, a share price of $24 could reasonably be anticipated. The longer-term opportunity lies in the company’s ability to consistently achieve a 20% ROTCE, thereby increasing its net worth and justifying a higher multiple, and, consequently, a significantly increased share price.

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2026-02-15 09:02