Specialty finance company LM Funding America, Inc. (LMFA - Get Rating) provides funding to nonprofit community associations primarily, focusing on associations in Florida, Washington, Colorado, and Illinois. The Tampa, Fla.-based company announced a 1-for-5 reverse stock split on May 6, 2021 to ensure continued compliance with Nasdaq’s $1 minimum bid price requirement. Over the past six months, the stock has lost 10.4% in price to close Friday’s trading session at $4.75.

However, the stock has gained 20.6% over the past three months and 39.6% over the past year. The shares surged in the last trading session due partly to possible meme traders’ interest in it and rising bitcoin prices. Moreover, LMFA’s top and bottom lines improved significantly in the second quarter. So, the stock’s near-term prospects look bright.

Click here  to check out our Cryptocurrency Industry Report for 2021

Here are the factors that could influence LMFA’s performance in the coming months:

Rising Bitcoin Prices

Bitcoin prices soared above $60,000 of late for the first time since April, following the U.S. Securities and Exchange Commission’s announcement that it is set to approve the first bitcoin futures exchange-traded fund (ETF). Some analysts also expect bitcoin prices to hit six figures in 2021.

Last month, LMFA established a new subsidiary, U.S. Digital Mining and Hosting Co., LLC, to operate a new cryptocurrency mining business. The businesses’ operations could begin as soon as the second quarter of 2022. Furthermore, the company announced on October 6 that it has further expanded the scope of its cryptocurrency mining operations with the purchase of an additional 4,000 S19J Pro Antminer Machines (S19J) (100 TH/s) from Bitmain. So, it could benefit from rising bitcoin prices.

Impressive Financials

LMFA’s total revenues increased 85.9% sequentially to $328,385 for the second quarter, ended June 30, 2021. The company’s total operating expenses decreased 17.2% year-over-year to $641,625. Its net income came in at $11.25 million in the quarter compared to a $437,968 loss in the year-ago period. Also, its EPS was $2.05 compared to a $0.56 loss per share in the prior year period.

Discounted Valuation

In terms of trailing-12-month GAAP P/E, LMFA’s 1.49x is 87% lower than the 11.43x industry average. Likewise, the stock’s 0.70x trailing-12-month price-to-book is 43.7% lower than the 1.25x industry average. Also, its 6.61x trailing-12-month P/CF is 24.7% lower than the 8.77x industry average.

POWR Ratings Show Promise

LMFA has an overall B rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. Among these categories, LMFA has a B grade for Value, which is in sync with its lower-than-industry valuation ratios.       

The stock has a B grade for Momentum, which is consistent with its 20.6% gains over the past three months and 41.8% year-to-date returns.

LMFA has a B grade for Quality also. This is justified given its 1,748.37% railing-12-month net income margin, which is significantly higher than the 29.79% industry average. Its 33.22% trailing-12-month ROTA is also higher than the 1.29% industry average.

LMFA is ranked #10 of 52 stocks in the Consumer Financial Services industry. In addition to the POWR Rating grades I have just highlighted, we’ve also rated the stock for Growth, Stability, and Sentiment. Get all the LMFA ratings here.

Bottom Line

Nano cap LMFA is a lesser-known company in the finance space but has a unique business model that participates in purchasing delinquent accounts. It is currently trading above its 50-day and 200-day moving averages of $4.48 and $4.69, respectively, indicating an uptrend. Furthermore, it looks reasonably valued at its current price level and is expected to rally as bitcoin prices rise. So, we think it could be wise to bet on the stock now.

How Does LM Funding America (LMFA) Stack Up Against its Peers?

While LMFA has an overall POWR Rating of B, one could also check out these other stocks within the Consumer Financial Services industry that hold an A (Strong Buy) rating: Regional Management Corp. (RM - Get Rating) and OneMain Holdings, Inc. (OMF - Get Rating).

Click here  to check out our Cryptocurrency Industry Report for 2021

LMFA shares fell $0.35 (-7.37%) in premarket trading Monday. Year-to-date, LMFA has gained 41.79%, versus a 20.42% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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