Entering text into the input field will update the search result below

LendingClub: Tremendous Upside If The Economy Continues To Improve

Jun. 11, 2020 1:13 PM ETLendingClub Corporation (LC)9 Comments
Armas Investing profile picture
Armas Investing


  • LendingClub's stock is down 50% YTD, making it one of the few stocks that hasn't participated in the overall market rally.
  • The near-term outlook is bleak, with the company guiding for Q2 loan originations to decrease 90% from the previous quarter.
  • If your view is that the economy continues to improve through 2020 and into 2021, LendingClub's stock has tremendous upside.


LendingClub (NYSE:LC) is a peer-to-peer platform that connects borrowers with investors. Borrowers go to LendingClub's website, fill out their information, and in a day or two, they receive their loan. Investors can then log onto LendingClub's website and choose loans in which they wish to fund.

The peer-to-peer lending model works best when economic conditions are good, credit is flowing freely, and peer-to-peer investors are willing and able to purchase loans. With today's conditions, there is obviously added uncertainty to the business model. Peer-to-peer platforms, like LendingClub, haven't been through a recessionary cycle. LendingClub was born out of the previous recession as institutions were reluctant to extend credit to borrowers.

With loan originations decreasing, LendingClub has an uphill battle to fight. Additionally, yield spreads to peer-to-peer investors are wider than they have ever been, but it still may not be enough. If LendingClub is unable to sell their loans, they will be forced to keep them on their books and potentially take sizable losses.

LendingClub's stock is no doubt one of the more riskier plays; high-yield unsecured consumer debt and a recession generally isn't the greatest recipe. However, we believe that these risks have been more than fairly priced into the stock's value. We view LendingClub as a potential investment opportunity for more speculative investors.

ChartData by YCharts

Revenue Is Suffering Due To Originations, But This Should Come As No Surprise

LendingClub earns money through origination fees that range between 2% and 6%. Additionally, they collect servicing fees on monthly principal and interest delivered to investors of 1% each month. As a result, revenue is highly correlated with the amount of loan originations that the company is able to churn out.

Since reaching a peak in the 3rd quarter of 2019, originations have slowed over the previous two quarters. Further, the company


ChartData by YCharts

This article was written by

Armas Investing profile picture
Armas Investing is a group of banking and food scientist professionals covering financials and food sectors. We aim to generate ideas based on our knowledge in the field.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in LC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.