Why Shares of Pagaya Crashed Today

What happened

Shares of the artificial-intelligence loan platform Pagaya Technologies (NASDAQ: PGY) traded nearly 60% down as of 11:43 a.m. ET after the company submitted a regulatory filing to sell up to 46.1 million shares, and potentially as much as 674 million shares.

So what

Pagaya went public in June through a special purpose acquisition company (SPAC). Like most SPACs with high valuations, Pagaya slumped after it started trading independently, with most tech and fintech valuations way down this year.

But in a registration statement in July, the company revealed that, due to redemptions, its public float was extremely small at less than 1 million shares. That led retail traders to grab hold of all of the outstanding shares and drive the price higher. The stock, which now trades at $2.80 per share, had risen all the way to about $30 at its height.

However, this was not expected to last long because Pagaya had hundreds of millions of outstanding shares being held by other shareholders that were locked up for a certain time period. This recently announced sale appears tied to the expiration of certain lock-up agreements that now could result in shares flooding the market and significantly increasing the public float.

Now what

Pagaya is an interesting fintech company. It assists financial institutions and companies to get more customers and make more fee income by underwriting and selling loans that come through their sales pipelines to institutional investors.

After this recent massive decline, the valuation is a lot more attractive and the company may merit consideration. But I would first let things settle with the share supply.

I also wonder how the company will be able to navigate through this rapidly rising interest-rate environment, which has not been good for fintech companies like Pagaya this year. I'm not ready to buy yet, but am more intrigued at this valuation.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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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