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Is Open Lending (LPRO) a Smart Long-term Buy?

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Forager Funds recently released its Q3 2020 Investor Letter, a copy of which you can download here. The Australian and International Funds delivered quarterly returns of 26% and 13%, respectively. You should check out Forager’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.

In the said letter, Forager Funds highlighted a few stocks and Open Lending Corp (NASDAQ:LPRO) is one of them. Open Lending Corp (NASDAQ:LPRO) provides automated lending services to financial institutions. Open Lending Corp (NASDAQ:LPRO) stock gained 163.9% and on November 9th it had a closing price of $27.81. Here is what Forager Funds said:

"Open Lending owns a technology platform that provides lending enablement and risk analytics solutions to credit unions, regional banks and auto lenders in the United States. Their solutions include loan analytics, risk-based pricing, risk modeling and default insurance to help ensure profitable auto loan portfolios for financial institutions.

The US auto loan market has historically been bifurcated—you are either a prime customer and get very attractive interest rates or you are sub-prime and find yourself paying sky-high rates. There is a whole cohort of “near-prime” customers that have low default risks but are being charged sub-prime rates. It is these potential customers that Open Lending allows loan providers to target.

Open Lending has facilitated more than US$7bn automotive loans and currently serves over 300 automotive lenders. The company generates revenues through program fees that are paid by lenders as well as profit share and claims administration service fees paid by insurance partners. We were drawn to the business due to its high margins, explosive revenue growth (expected to double in 2021) and a potential rebound in auto loan originations post COVID-19.

We expect the accelerated revenue growth to be sustained over the mid-term given a large US$250bn addressable market and secular growth driven by increased auto sales and the expansion of the near-prime customer market. In addition, its proprietary risk-based pricing model, based on more than 15 years of data and a fully integrated, cloud-based platform, provide a moat around the business. More importantly, when we first bought the shares a few days after the SPAC transaction closed at US$15, our entry price implied a price-to-earnings multiple of only 16 times, highly attractive for a business with these kinds of growth prospects."

Rawpixel.com/Shutterstock.com

In Q2 2020, the number of bullish hedge fund positions on Open Lending Corp (NASDAQ:LPRO) stock increased by about 11% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Open Lending's growth potential. Our calculations showed that Open Lending Corp (NASDAQ:LPRO) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website:

Disclosure: None. This article is originally published at Insider Monkey.