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Is Mogo Undervalued Compared To Its Peers? Analyst Weighs In

Mogo (NASDAQ: MOGO) is a financial technology company headquartered in Canada. The company’s Mogo app can be used by consumers to access a digital spending account using the Mogo Visa Platinum Prepaid Card. Consumers can use the card to buy and sell cryptocurrency like bitcoin, get free monthly credit score monitoring, and gain access to personal loans, identity fraud protection, and automatic carbon offsetting.

Shares of MOGO have tanked 17.2% in the last month.

On July 21, H.C. Wainwright analyst Scott Buck told investors that “shares of MOGO have traded much more consistently with crypto-currencies than with leading financial technology companies.”

Buck believes that this is due to “some investor misunderstanding of the business following recent investments in crypto businesses including Canadian crypto exchange Coinsquare and Canadian crypto custodian Tetra Trust Company.”

The analyst has a Buy rating on the stock and a price target of $16 (173% upside). Now let’s look at why Buck thinks it could be a misunderstanding on the part of investors.

Mogo’s Cryptocurrency Investments

Mogo recently announced a new minority investment of around 4% in Tetra Trust Company (Tetra Trust). Tetra Trust was launched earlier this month and is Canada’s first qualified custodian for cryptocurrency assets.

Tetra Trust's core business will be the storage and custody of cryptocurrency assets, including bitcoin.

Tetra Trust is backed by Coinsquare, Canada’s crypto exchange digital asset trading platform, the Canadian Securities Exchange (CSE), and Coinbase Ventures, an investment arm of Coinbase (COIN).

Mogo has also acquired an approximately 39% stake in Coinsquare. The company said at an investor presentation in May this year that Mogo still retains a warrant to take its ownership stake in Coinsquare to around 48% for a total consideration of around $60 million. (See Mogo stock charts on TipRanks)

Analyst Buck is of the view that these minority investments will “provide upside should the value of its investment increase with the rising popularity of crypto-currencies, [however] company operations are still almost entirely driven by more traditional digital bank services.”

This is because, according to Buck, the proportion of MOGO’s revenues tied to trading in cryptocurrency could be 5%, or possibly less than that, “suggesting very little, if any, impact from the recent decline in value of many popular crypto-currencies, including Bitcoin.”

Mogo Shares Not Trading In Line with Fintech Peers

Buck pointed out that MOGO's decline in the past month compares to a fall of 16.4% in Bitcoin. In contrast, shares of Square (SQ) and PayPal Holdings (PYPL) have risen 4.6% and 5.2%, respectively, over the same period.

Furthermore, the analyst said that this indicated that shares of MOGO are trading at a “meaningful discount to U.S. financial technology peers, despite having both largely similar operations and a similarly dominant market position, albeit in the smaller Canadian market.”

Buck believes that MOGO is trading at an EV-to-revenue multiple of around 7.1 times the consensus estimates for FY22, in contrast to its fintech peer group, trading at a multiple of 18 times. The analyst believes that as the company continues to show its ability to increase revenue, the valuation of MOGO should be in line with its peers.

The analyst added that he has valued MOGO’s total potential investment in Coinsquare at around $5 per share, “based on a 25% discount to the 2021 EV/revenue multiple for larger crypto exchange Coinbase Global.”

As a result, Buck points out that MOGO's current valuation does not reflect in any way the “intrinsic value of the core operations let alone any value for the potential 48% investment in Coinsquare.”

“Longer term, we believe the company is positioned to deliver improving financial performance, which, in our view, would warrant multiple expansion,” the analyst added.

Turning to the rest of the Street, consensus is that MOGO is a Strong Buy based on 5 Buys. The average Mogo price target of $12.64 implies 115.7% upside potential to current levels.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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