OppFi: Balancing Growth Potential with Risk in Underserved Credit Markets

OppFi (NYSE: OPFI) has emerged as a compelling story in the fintech lending sector, driven by record financial performance and strategic expansion into underserved credit markets. However, its stock faces headwinds from macroeconomic uncertainty and elevated valuation multiples. Here's why investors should take note—and exercise caution.

Record Financials Fuel Optimism

OppFi's Q1 2025 results marked a turning point. Adjusted net income surged 285% year-over-year to $33.8 million, while revenue rose 10.1% to $140.3 million. The company's guidance for 2025 was aggressively raised, projecting adjusted net income of $106–$113 million—a $11 million midpoint increase from prior estimates. This optimism is underpinned by two critical trends:

1. Margin Expansion: Net charge-off rates dropped 1,330 basis points to 34.6%, while the average annualized yield rose to 135.8%, reflecting improved credit risk management and pricing power.
2. Strategic Focus: OppFi's shift toward higher-quality borrowers and auto-approved loans (now 79% of originations) has reduced operational complexity and credit losses.

Analyst Bullishness and Technical Momentum

Analysts have taken notice. JMP Securities upgraded OppFi to “Outperform” in May 2025, citing its “disciplined growth and margin resilience”, while a consensus “Buy” rating holds with an average price target of $14.67—a 6.9% premium to current levels. Technical analysts highlight a “Strong Buy” signal, with OppFi's stock in a rising trend and short-term resistance at $14.45.

Risks Lurking in the Shadows

Despite the positives, risks remain.

• Valuation Concerns: OppFi's P/E ratio of 50.5 is elevated compared to peers like Enova International (ENVA, P/E 22.3). This multiple expansion hinges on sustained margin improvements, which could falter if credit losses rebound.
• Macroeconomic Pressures: Rising interest rates and inflation could dampen demand for high-cost loans, while regulatory scrutiny (e.g., California's AB 539) threatens lending models.
• Execution Risks: Expanding into small-business financing (via its Bitty Advance partnership) is unproven and capital-intensive.

Investment Thesis: Cautious Bullishness

OppFi's fundamentals justify a partial bullish stance, but investors must proceed strategically:

1. Buy on Dips: With the stock near $13.80, a pullback to $12–$13 (near its 200-day moving average) could present an entry point.
2. Monitor Margin Trends: Sustained charge-off rates below 35% and yields above 130% will be critical to validating the high valuation.
3. Diversify Risk: Allocate a small portion of a fintech portfolio to OppFi, pairing it with safer peers like Discover Financial (DFS) or PayPal (PYPL).

Final Take

OppFi's Q1 performance and strategic moves position it as a leader in alternative lending—a sector poised to grow as traditional banks tighten credit standards. However, its stock's sensitivity to macroeconomic shifts and valuation risks demand patience. For investors willing to accept volatility, OppFi offers a high-reward opportunity—but only for those who can stomach the ride.

Recommendation: Hold a 5–10% position in a diversified portfolio, with a focus on long-term growth. Avoid aggressive buying above $14 until margin stability and regulatory clarity materialize.