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Should Elevate Credit IPO Worry Other Online Lenders?

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On Apr 6, a Texas-based lending company, Elevate Credit, Inc. went public on New York Stock Exchange, priced at $6.50 per share. This was the company’s second attempt to be listed after postponing its IPO in Jan 2016 due to unfavorable market conditions.

The company offers online credit facility to people who have credit scores less than 700 in the U.S. and the U.K. They assess a customer’s credit worthiness with reference to their bank accounts. They also use software to examine their online research habits.

Is Elevate Credit’s listing a cause for concern for its peers – LendingClub Corporation (LC - Free Report) and On Deck Capital, Inc. (ONDK - Free Report) , among others?

On the first day of trading, Elevate Credit’s shares increased 10.9% versus LendingClub’s gain of 1.7% and On Deck Capital’s closing at the price it opened with. But this outperformance in terms of price might not be an indication of threat for the peers.  

These two companies have been trading for quite a few years now and have experienced a decent growth so far.

While Elevate Credit  is currently trading below its competitors as well as the consumer finance industry in terms of price/sales, its growth potential is yet to be estimated by the market.   

The model of lending and customer examination used by the company have not been experienced at times of recession and the changing interest rate environment, making it a risky investment as of now. Moreover, it reported high net charge-off rates in the last few years. Hence, other lending companies might appear more lucrative to investors at present compared to Elevate Credit.

Currently, LendingClub has a Zacks Rank #3 (Hold) and On Deck Capital carries a Zacks Rank #2 (Buy).

A couple of other stocks in the financial space worth considering include KB Financial Group Inc. (KB - Free Report) and BGC Partners, Inc. . Both these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

KB Financial’s earnings estimates were revised upward by a solid 7.4% for the current year in the past 30 days. Also, its share price increased 53.2%, over the last one year.

BGC Partners’ earnings estimates were revised 5.3% upward, over the last 30 days. Further, its shares jumped 26.7% in the last one year.

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