B.Riley reiterates Buy on Pagaya Tech stock, cites valuation discount

B.Riley reiterated a Buy on Pagaya (PGY) with a $32.00 price target, citing CEO Gal Krubiner’s $250,000 open-market share purchase at $15.43 (June 25 filing) and valuation support (7.9x forward P/E vs peers at ~18x; PEG 0.12). The firm expects ROE to rise from mid-single digits in 2025 to >20% in 2026 and >30% in 2027, alongside continued net income guidance increases despite a cautious credit posture. The stock remains down ~20% YTD and has ~19% short interest, but recent partnership expansion with Upgrade to include BNPL Flex Pay and Fitch’s first AAA rating (plus auto resecuritization) reinforce the positive setup.

Analysis

PGY looks less like a pure sentiment trade and more like a financing-franchise re-rate if its securitization track record holds. The market is still pricing it as if growth must come from looser underwriting, but the better setup is the opposite: modest volume growth plus lower funding costs and cleaner loss history can drive operating leverage faster than headline origination growth would suggest. The short interest means any additional evidence of stable credit and partner wins can force a fast move in the next 2-6 weeks.

The second-order winner is the asset-backed securities market around consumer credit, not just PGY itself. If Fitch-style validation expands and more partners adopt the platform, competitors that rely on balance-sheet funding or higher-cost private credit should face margin pressure; that is most relevant for UPST and smaller niche originators that do not yet have repeatable capital markets access. Conversely, if funding spreads widen or consumer delinquencies tick up, PGY's valuation multiple can compress quickly because the bull case depends on both credit quality and capital availability remaining intact.

The contrarian view is that the stock may already have enough good news priced in after insider buying and repeated sell-side support. The key question is whether the company can turn cautious underwriting into sustained EPS compounding without capping top-line growth; if platform dollar volume stalls for another quarter, the 'cheap P/E' narrative may fade and become a classic value trap. Watch partner onboarding, ABS execution, and forward loss guidance over the next 1-2 quarters; a miss there would invalidate the re-rating thesis.

Key Decisions for Investors

• Long PGY into any post-news consolidation, targeting a 1-3 month re-rating if credit metrics hold; risk/reward is attractive while short interest remains elevated, but reduce if the stock loses the recent support zone and management does not confirm partner growth.
• Pair trade: long PGY / short UPST over 1-2 quarters to express 'proven funding access and credit control' versus 'growth-dependent consumer lending'; the trade works if capital markets confidence stays open and credit stays benign.
• Use a tactical call spread in PGY for the next earnings cycle if implied volatility is not excessive; the catalyst is a squeeze on continued positive credit commentary, while downside is capped if the stock fails to break above prior resistance.
• Set a hard watch item on funding spreads and securitization execution; if ABS pricing or delinquency trends worsen, exit the long because the valuation case is highly sensitive to capital cost.
• For broader exposure, consider a small basket long in fintechs with strong credit outcomes and asset-light funding, but avoid adding to names that still need volume growth to justify multiples.