OppFi Experiences Strong Growth Amidst Subprime Borrower Services

OppFi reported a strong Q1 performance, with the stock surging over 10% after releasing its results. The company services subprime borrowers and offers various products to help them rebuild their credit. Despite its success, OppFi faces strong economic risks due to its focus on subprime lending, which can be vulnerable to economic downturns.

OppFi Inc. (OPFI) reported robust first-quarter (Q1) 2025 earnings, with the stock surging over 10% after the results were released. The company, which focuses on serving subprime borrowers and offering various credit rebuilding products, saw revenues grow by 8.1% year-over-year (YoY) to $137.7 million, and earnings per share (EPS) increase by more than 100% to 26 cents per share [1].

OppFi's strategy of capturing the underbanked market, which is expected to expand at a compound annual growth rate (CAGR) of 13% and reach $7 trillion by 2032, has been a key driver of its growth. The company's ability to offer affordable credit to subprime and non-prime credit holders has allowed it to expand its customer base and increase its top-line revenues [1].

The company's earnings surprise history is impressive, with it beating the Zacks Consensus Estimate in the trailing four quarters, delivering an average earnings surprise of 73% [1]. This consistent performance has been facilitated by the company's strong operational excellence and credit discipline. In Q1 2025, OppFi reported a net charge-off rate of 35%, a significant improvement from the 48% reported in the same quarter of the previous year [2].

Despite its strong performance, OppFi faces significant economic risks due to its focus on subprime lending. The company's target market is vulnerable to economic downturns, and the recent rise in delinquencies on auto loans and credit cards, particularly from borrowers with non-prime credit scores, is a cause for concern [2]. Additionally, the Federal Reserve's Financial Stability Report indicates that charge-off increases across the financial system are showing up, although at tolerable levels [2].

OppFi's strong financial performance and executional discipline in the past year cannot be ignored. The company's credit discipline, declining charge-offs, and operational excellence are all positive signs. However, the road ahead is fraught with challenges, and any upside in the longer term will likely come after the initial pullback [2].

In conclusion, while OppFi reported strong Q1 performance, investors should be cautious due to the economic risks associated with subprime lending. The company's strong financial performance and operational excellence are encouraging, but the potential impact of an economic downturn on its target market cannot be overlooked.

References:
[1] https://www.tradingview.com/news/zacks:5829e3b3a094b:0-oppfi-q1-earnings-coming-up-should-you-buy-sell-or-hold-the-stock/
[2] https://seekingalpha.com/article/4783581-oppfi-excellent-business-rising-economic-risks