Pagaya Stock Drops 20% Amid High Interest Rate Concerns

Pagaya Technologies (NASDAQ:PGY) saw its stock drop 20% in September, reflecting investor concerns over the impact of high interest rates and bond market volatility on the credit evaluation company. Pagaya uses artificial intelligence and machine learning to help lenders assess borrower risk more accurately and quickly than traditional models. The company acts as a middleman, approving loans and selling them as asset-backed securities (ABS) to institutional investors.

The platform's growth strategy focuses on adding new client partners and increasing engagement with existing ones. Pagaya already works with 35 partners, including Visa (NYSE:V), U.S. Bank (NYSE:USB), and SoFi Technologies (NASDAQ:SOFI). Despite reporting strong growth, with second-quarter revenue up 19% year over year to $387 million and net income increasing 172% to $45 million, the company faces challenges due to higher borrowing costs.

One area of pressure is the fee revenue less production costs (FRLPC) margin, which decreased by 0.61 percentage points to 4.2% in the second quarter. While Pagaya's stock is considered cheap at under 14 times trailing 12-month earnings, it is not suitable for risk-averse investors. The company's high growth and innovative AI-driven approach make it an attractive option for those with a high risk appetite.