Prospa Share Price Smashed on Profit Woes. Is Now the Time to Buy?

Prospa Share Price - ASX PGL
Prospa Share Price Smashed on Profit Woes. Is Now the Time to Buy?

Anyone invested in Prospa shares may have fallen out of their seat yesterday.

Investors smashed Prospa Group Limited [ASX: PGL], sinking the share price by 27%.

You may be asking yourself: Is now a good time to buy?

Well, to tackle that question, we need to know why the Prospa share price fell in the first place.

Let’s find out what Prospa do before we get to that.

Who is Prospa Group Limited?

Prospa is an Australian credit provider.

The company is looking to close the gap between available credit and the small business owner.

It offers loans between $5,000 and $300,000. Loans valued up to $100,000 can be issued without security.

The company has funded over $1.35 billion in loans to small businesses.

Why did the shares fall 27%?

Alright, you’ve now got an idea of what Prospa do.

Let’s take a look at why the share price fell…

Yesterday Prospa issued to the market a business trading update.

The business said loan originations are expected to be at $574 million for the calendar year…more than original forecast in their prospectus. That looks positive at first glance.

That’s 32% over their last communication with investors.

So why did shares fall 27%?

Prospa cut their earnings forecast from $10 million down to $4 million. And investors absolutely hate it when the company doesn’t meet its forecasts.

Investors have punished the company and it sent the Prospa share price south.

Prospa says they’re currently targeting a higher quality of borrower that should result in better loan loss provisions but these clients pay lower rates as a consequence. Hence the hit to profits.

Clearly the share market isn’t buying this angle currently.

I’m not adverse to buying a dip for a good quality company. However, Prospa is a relatively new stock on the ASX. I want to see more evidence they are a strong long term proposition before committing any capital to the idea.

History says companies can take a while to recover from a downgrade like this — especially when they’re investors have now been badly burnt.

I wouldn’t rush in here.

As always, this is not a recommendation to buy or sell Prospa. It is an update only. I hope you found it useful.

Until next time,

Jonathan Evans Signature

Jonathan Evans,
Analyst, Profit Watch