I Believe Strong Origination Growth And Technology Will Position The Company To Serve Underserved Markets Efficiently

Key Takeaways

• Stable credit, effective risk management, and a strong online-only model position Enova for significant earnings and revenue growth.
  
• Enova leverages proprietary technology to efficiently serve a broad, underserved market, supporting sustained demand and revenue growth.
  
• Economic downturns, sector concentration, tech reliance, competition, and regulatory changes pose risks to Enova's revenue, margins, and operational stability.

Catalysts

A technology and analytics company, provides online financial services in the United States, Brazil, and internationally.

• Enova's strong origination growth, driven by stable credit and effective risk management, positions the company for future revenue growth by expanding both loan and finance receivables. This can enhance future earnings and revenue potential.
  
• The company's online-only business model creates significant operating leverage, which, when combined with disciplined stock repurchasing, is likely to result in EPS growth that outpaces origination growth, positively impacting net margins and earnings.
  
• The favorable macroeconomic environment, characterized by job growth, low unemployment, and rising real wages, supports Enova's target customer base, potentially leading to increased demand for its lending products, thereby contributing to revenue and earnings growth.
  
• Enova's effective use of world-class technology and proprietary machine learning algorithms allows it to efficiently serve a large, underserved segment of consumers and small businesses, which should support sustained revenue and EPS growth.
  
• Strong consumer sentiment and sustained demand from small businesses, highlighted by Enova's Small Business Cash Flow Trend Report, indicate confidence in future growth, suggesting potential for increased originations and revenue growth.

Enova International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Enova International's revenue will grow by 49.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 16.9% today to 9.0% in 3 years time.
• Analysts expect earnings to reach $375.6 million (and earnings per share of $14.27) by about March 2028, up from $209.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.2x on those 2028 earnings, down from 11.5x today. This future PE is lower than the current PE for the US Consumer Finance industry at 11.0x.
• Analysts expect the number of shares outstanding to decline by 4.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.27%, as per the Simply Wall St company report.

Enova International Future Earnings Per Share Growth

Risks

• The potential for changes in the macroeconomic environment, such as increased unemployment or economic downturns, poses a risk as they could negatively affect consumer and small business credit performance, impacting revenue from loan originations and net revenue margins.
  
• A high concentration of loans in a particular segment (62% in small business and 38% in consumer) could expose Enova to sector-specific risks, potentially affecting revenue and net income if one segment underperforms due to external factors.
  
• Enova's reliance on proprietary technology and machine learning for credit assessments may present operational risks, as any significant disruption or failure could impact origination volumes, credit quality, and ultimately, earnings.
  
• Increased competition from alternative lenders in both the consumer and small business markets could put pressure on origination growth and net interest margins if Enova has to offer more competitive rates or terms.
  
• Regulatory risks, such as potential delays or changes in legislation like the small business disclosure rule (1071) or small dollar rule, could lead to increased compliance costs or operational challenges, affecting net margins and net income.

Valuation

• The analysts have a consensus price target of $129.571 for Enova International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $138.0, and the most bearish reporting a price target of just $109.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.2 billion, earnings will come to $375.6 million, and it would be trading on a PE ratio of 10.2x, assuming you use a discount rate of 10.3%.
• Given the current share price of $93.12, the analyst price target of $129.57 is 28.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.