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Is Pagaya Stock's Low Valuation an Opportunity or a Value Trap?
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Key Takeaways
PGY trades at a 1.29X price-sales ratio, below peers and its historical highs, signaling potential value.
A resilient model, AI-driven lending and off-balance-sheet funding aid PGY's rapid growth and flexibility.
Rising production costs and flat earnings estimates raise caution despite PGY's 147.7% YTD stock surge.
At a glance, Pagaya Technologies (PGY - Free Report) stock looks attractively priced in terms of its price/sales (P/S) ratio when compared with its peers. Value investors try to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts compared with fair value.
Such investors sometimes prefer to look at a company’s P/S ratio as the metric considers sales, something that is far harder to manipulate with accounting tricks than earnings. In the case of PGY, which is one of the most compelling fintech companies in today’s market, the stock is currently trading at a forward 12-month P/S ratio of 1.29X, below the industry average of 3.42X.
Also, PGY’s current P/S ratio is somewhat lower than its high over the past two years, which suggests some level of undervalued trading compared with historical norms.
PGY P/S (F12M)
Image Source: Zacks Investment Research
Further, Pagaya is trading at a discount compared with its close competitors, SoFi Technologies, Inc. (SOFI - Free Report) and Virtu Financial, Inc. (VIRT - Free Report) . SoFi Technologies is currently trading at a forward 12-month P/S ratio of 6.41X, while Virtu Financial has a P/S (F12M) of 4.04X.
Hence, based on valuation, Pagaya seems like an attractive investment option now and has the potential for significant gains when the market recognizes its true worth.
However, before making any investment decision, it is better to have a look at PGY’s fundamentals and growth prospects.
Pagaya’s Positives to Note
Diversified & Resilient Business Model: PGY’s core strength lies in its resilient and adaptable business model. The company is actively expanding beyond its original focus on personal loans, moving into auto lending and point-of-sale financing. This diversification reduces exposure to cyclical risk in any single loan category, making the business more stable across economic cycles.
Parallel to this, Pagaya is diversifying its funding sources. It has built a robust network of more than 135 institutional funding partners to support the sale of its asset-backed securities (ABS). Also, the company leverages forward flow agreements — structured financing arrangements in which institutional investors commit to purchasing future loan originations from Pagaya’s banking partners. These agreements offer a critical alternative funding source if ABS markets face disruptions during periods of market stress.
PGY has a competitive edge in its proprietary data and product suite. One standout offering is its Pre-screen solution, which enables banks and lenders to present pre-approved loan offers to existing customers without requiring a formal application. By analyzing the lender’s customer base and identifying qualified borrowers proactively, the company helps financial institutions deepen customer relationships and expand credit access with minimal incremental marketing spend. This marks an evolution in its value proposition—from driving market share gains for partners to now enhancing their share of wallet with existing customers.
Lean Balance Sheet: Pagaya operates a capital-efficient model that largely avoids holding loans on its balance sheet, significantly reducing its exposure to credit risk and market volatility. This is made possible through a robust network of institutional funding partners and a strategic focus on issuing ABS. The capital raised in advance is held in trust and deployed only when a lending partner originates a loan through Pagaya’s artificial intelligence (AI)-driven network. At that point, the loan is immediately acquired by a pre-committed funding source, either through an ABS vehicle or a forward flow agreement. As a result, most loans never reside on Pagaya’s balance sheet or only do so briefly before being transferred.
This off-balance-sheet model has proven particularly effective during periods of elevated interest rates and market stress, such as from 2021 through 2023. By minimizing credit exposure and avoiding significant loan write-downs, Pagaya has maintained its financial flexibility in turbulent environments.
PGY appears to rely heavily on forward flow agreements. These contracts provide a reliable and predictable source of capital, helping the company maintain liquidity even amid tightening credit markets and rising inflation. The company’s funding strategy is highly capital-efficient. It enables it to scale while minimizing equity dilution and limiting balance sheet risk.
Analyzing PGY’s Price Performance
So far this year, Pagaya’s shares have skyrocketed 147.7%, outperforming the industry and the S&P 500 Index’s 4.6% and 5.9% rally, respectively. The company’s performance has also been better than that of SoFi Technologies and Virtu Financial.
SoFi Technologies shares have gained 37.7% and the Virtu Financial stock has appreciated 23.2% year to date.
Image Source: Zacks Investment Research
Buy, Sell or Hold Pagaya Stock?
Pagaya stock looks inexpensive compared with its industry and peers like SoFi Technologies and Virtu Financial. Given the impressive year-to-date performance, resilient business model and capital-efficient funding strategy, the company stands out in the fintech space. Its AI-driven platform, diversified revenue streams and reliance on forward flow agreements shield it from market volatility and credit risk.
However, PGY has been witnessing a persistent increase in expenses over the past few years. Over the last three years (2021-2024), total costs and operating expenses recorded a compound annual growth rate of 26.2%. The uptrend continued in the first quarter of 2025. The rise has mainly been because of elevated production costs.
Since production costs are highly correlated to the company’s network volume, the metric is anticipated to keep increasing in the near term as the value of its assets originated by its partners with the assistance of AI and with respect to single-family rental operations continues to grow. Thus, rising expenses will hurt PGY’s bottom-line growth to an extent.
Moreover, analysts do not seem optimistic regarding PGY’s earnings growth potential. Over the past 30 days, the Zacks Consensus Estimate for Pagaya’s 2025 and 2026 earnings has been unchanged at $2.45 and $3.13, respectively.
Earnings Estimate Revision Trend
Image Source: Zacks Investment Research
Thus, while Pagaya’s stock is an attractive pick for investors seeking exposure to a high-growth, tech-enabled lender with solid fundamentals, investors must exercise caution and should not rush to buy the stock now. Rising expenses, which may hurt profitability, is a major near-term headwind.
Yet, those who already own the PGY stock in their portfolio can hold on to it because it is less likely to disappoint over the long term.
Image: Bigstock
Is Pagaya Stock's Low Valuation an Opportunity or a Value Trap?
Key Takeaways
At a glance, Pagaya Technologies (PGY - Free Report) stock looks attractively priced in terms of its price/sales (P/S) ratio when compared with its peers. Value investors try to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts compared with fair value.
Such investors sometimes prefer to look at a company’s P/S ratio as the metric considers sales, something that is far harder to manipulate with accounting tricks than earnings. In the case of PGY, which is one of the most compelling fintech companies in today’s market, the stock is currently trading at a forward 12-month P/S ratio of 1.29X, below the industry average of 3.42X.
Also, PGY’s current P/S ratio is somewhat lower than its high over the past two years, which suggests some level of undervalued trading compared with historical norms.
PGY P/S (F12M)
Image Source: Zacks Investment Research
Further, Pagaya is trading at a discount compared with its close competitors, SoFi Technologies, Inc. (SOFI - Free Report) and Virtu Financial, Inc. (VIRT - Free Report) . SoFi Technologies is currently trading at a forward 12-month P/S ratio of 6.41X, while Virtu Financial has a P/S (F12M) of 4.04X.
Hence, based on valuation, Pagaya seems like an attractive investment option now and has the potential for significant gains when the market recognizes its true worth.
However, before making any investment decision, it is better to have a look at PGY’s fundamentals and growth prospects.
Pagaya’s Positives to Note
Diversified & Resilient Business Model: PGY’s core strength lies in its resilient and adaptable business model. The company is actively expanding beyond its original focus on personal loans, moving into auto lending and point-of-sale financing. This diversification reduces exposure to cyclical risk in any single loan category, making the business more stable across economic cycles.
Parallel to this, Pagaya is diversifying its funding sources. It has built a robust network of more than 135 institutional funding partners to support the sale of its asset-backed securities (ABS). Also, the company leverages forward flow agreements — structured financing arrangements in which institutional investors commit to purchasing future loan originations from Pagaya’s banking partners. These agreements offer a critical alternative funding source if ABS markets face disruptions during periods of market stress.
PGY has a competitive edge in its proprietary data and product suite. One standout offering is its Pre-screen solution, which enables banks and lenders to present pre-approved loan offers to existing customers without requiring a formal application. By analyzing the lender’s customer base and identifying qualified borrowers proactively, the company helps financial institutions deepen customer relationships and expand credit access with minimal incremental marketing spend. This marks an evolution in its value proposition—from driving market share gains for partners to now enhancing their share of wallet with existing customers.
Lean Balance Sheet: Pagaya operates a capital-efficient model that largely avoids holding loans on its balance sheet, significantly reducing its exposure to credit risk and market volatility. This is made possible through a robust network of institutional funding partners and a strategic focus on issuing ABS. The capital raised in advance is held in trust and deployed only when a lending partner originates a loan through Pagaya’s artificial intelligence (AI)-driven network. At that point, the loan is immediately acquired by a pre-committed funding source, either through an ABS vehicle or a forward flow agreement. As a result, most loans never reside on Pagaya’s balance sheet or only do so briefly before being transferred.
This off-balance-sheet model has proven particularly effective during periods of elevated interest rates and market stress, such as from 2021 through 2023. By minimizing credit exposure and avoiding significant loan write-downs, Pagaya has maintained its financial flexibility in turbulent environments.
PGY appears to rely heavily on forward flow agreements. These contracts provide a reliable and predictable source of capital, helping the company maintain liquidity even amid tightening credit markets and rising inflation. The company’s funding strategy is highly capital-efficient. It enables it to scale while minimizing equity dilution and limiting balance sheet risk.
Analyzing PGY’s Price Performance
So far this year, Pagaya’s shares have skyrocketed 147.7%, outperforming the industry and the S&P 500 Index’s 4.6% and 5.9% rally, respectively. The company’s performance has also been better than that of SoFi Technologies and Virtu Financial.
SoFi Technologies shares have gained 37.7% and the Virtu Financial stock has appreciated 23.2% year to date.
Image Source: Zacks Investment Research
Buy, Sell or Hold Pagaya Stock?
Pagaya stock looks inexpensive compared with its industry and peers like SoFi Technologies and Virtu Financial. Given the impressive year-to-date performance, resilient business model and capital-efficient funding strategy, the company stands out in the fintech space. Its AI-driven platform, diversified revenue streams and reliance on forward flow agreements shield it from market volatility and credit risk.
However, PGY has been witnessing a persistent increase in expenses over the past few years. Over the last three years (2021-2024), total costs and operating expenses recorded a compound annual growth rate of 26.2%. The uptrend continued in the first quarter of 2025. The rise has mainly been because of elevated production costs.
Since production costs are highly correlated to the company’s network volume, the metric is anticipated to keep increasing in the near term as the value of its assets originated by its partners with the assistance of AI and with respect to single-family rental operations continues to grow. Thus, rising expenses will hurt PGY’s bottom-line growth to an extent.
Moreover, analysts do not seem optimistic regarding PGY’s earnings growth potential. Over the past 30 days, the Zacks Consensus Estimate for Pagaya’s 2025 and 2026 earnings has been unchanged at $2.45 and $3.13, respectively.
Earnings Estimate Revision Trend
Image Source: Zacks Investment Research
Thus, while Pagaya’s stock is an attractive pick for investors seeking exposure to a high-growth, tech-enabled lender with solid fundamentals, investors must exercise caution and should not rush to buy the stock now. Rising expenses, which may hurt profitability, is a major near-term headwind.
Yet, those who already own the PGY stock in their portfolio can hold on to it because it is less likely to disappoint over the long term.
At present, Pagaya carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.