🧨 This Fintech Stock Will 3X AGAIN (Peak Fintech Group)

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The idea behind this channel is simple; connect the dots between ARK Invest's market research,
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stock picks, and daily trading data to highlight the best investing opportunities among companies
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that are transforming our daily lives. But what if we start applying some of the technology
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and economic trends ARK Invest is always talking about to stocks outside their portfolios?
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Can we find stocks that would make sense for Cathie Wood to hold in ARK Invest's funds
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and buy them before she does? The answer is an obvious yes. One of the things every disruptive
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company has in common is that they're using advanced technologies to solve modern problems
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that legacy companies aren't doing a great job solving for one reason or another. So
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one thing we can do is use ARK Invest's research to find these modern problems, pick the ones
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with huge total addressible markets, and see who's solving them, regardless of whether
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ARK Invest holds that company or even invests in that market. Here's a good example. 17
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million people in the US are underbanked or completely unbanked. About 4 and a half
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percent of those are small business owners, so that's about 765,000 small businesses.
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Traditional banks can't really solve that problem because they have high customer acquisition
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costs thanks to all of the physical assets they need to pay for; think big buildings
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in the best parts of major cities, all the staff inside them, huge networks of ATM machines,
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and so on. These big banks aren't willing to go after businesses they don't think they
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can make a positive return on over time, which means they can't afford to serve many of the
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businesses that are currently unbanked! Pretty ironic, right? Digital banking solutions don't
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have those physical assets, which means they can make a positive return on a tiny business
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much quicker. Those reduced customer acquisition costs let digital banks do 2 things: spend
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some money poaching smaller businesses from big banks with better offers AND acquiring
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underbanked businesses with less money in the first place, since they can still earn
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a profit off of them while big banks can't. This big difference in customer acquisition
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costs between big banks and digital wallets is something ARK Invest really hammers on
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in their research on Square, Paypal, and other digital banking solutions found in ARKF, their
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Fintech Innovation Fund. Well, it turns out that unbanked businesses are a fairly small
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problem in the USA, because those 765,000 underbanked businesses account for less than
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2 and a half percent of all small businesses in the US. Relatively speaking, it seems that
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this is a fairly solved problem, right?
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Well, if you zoom out to the rest of the world, you can see that this is actually a huge problem
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pretty much everywhere else, which means the market opportunity is actually enormous. Around
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two thirds of Latin America and the Middle East are underbanked or unbanked completely.
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Around 60 percent of Southeast Asia is unbanked. According to a study done by Google, Bain,
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and Sea Limited, that number could actually be as high as 75% percent in Southeast Asia.
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In Sub-saharan Africa, the number is as high as 80% percent. No one company can solve this
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MASSIVE problem worldwide because the financial culture of each region is different, as are
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their banking systems and regulations. A one-size-fits-all Fintech solution just doesn't make sense,
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so to fully capitalize on this world-wide opportunity we need to be picking the winners,
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plural, that will emerge region by region. Even though ARK Invest is out of Chinese stocks
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right now, the stock I want to talk about in this episode focuses on solving this problem
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for small and medium sized businesses in China in a way that the Chinese government supports.
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That's important to recognize in light of the recent regulatory crackdowns. The name
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of the company is Peak Fintech Group and it just uplisted to the NASDAQ in early September
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with the ticker symbol T N T, which is very fitting, giving how much the stock's price
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has exploded over the last 3 months. I think Peak Fintech belongs in ARKF, since it uses
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advanced technology to solve societal a problem ARK Invest cares about in a market where this
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problem is massive. Full disclosure, I used to hold 8100 shares of this stock with an
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average cost basis of $2.82 when it was still listed on the OTC Markets and I just sold
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my last share at $10.00 even. So, I currently don't own this stock but will 100% be buying
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back into it when I start my $100,000 public portfolio to compete with Cathie Wood's ARKK,
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which I'll talk more about at the end of the episode.
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Let's dive into Peak Fintech Group, starting with the problem they're solving. Over 100
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MILLION small businesses in China had a hard time getting access to credit in the last
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3 years. That's 130 times more than the US number I gave you earlier and is largely attributed
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to the structure of China's financial system, which is fragmented and difficult to navigate.
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The first part of solving this problem is bringing the data from all of these financial
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fragments together and standardizing it to make apples-to-apples decisions about how
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to connect businesses who need money with lenders who have money. That's what Peak Fintech
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does; it's basically Tinder between businesses and banks. But uh, without all the swiping
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and creepy messages. Nevermind. Lenders want to see bank statements, government approvals,
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and so on from a business, while the business wants to understand the criteria they need
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to meet to get approved for a loan. Once all this data from lenders, brokers, banks, businesses,
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and other data providers is all in one place and standardized, Peak Fintech uses data analytics
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and artificial intelligence to match lenders and vendors. If you've been watching my channel
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for a little while, you'll know I'm obsessed with this idea of frictionless value transfer,
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again, an idea that Cathie Wood and ARK Invest relentlessly focus on. The basic idea of frictionless
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value transfer to take an inconvenient but necessary process – like getting a loan, going
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to the doctor, talking to other people (ughgh) – and make it more convenient with technology.
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Here's how Peak Fintech reduces friction for the participants in their ecosystem. For Small
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and Medium-Sized Enterprises, it's free to sign up and you automatically get matched
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with ALL the lenders you qualify for without needing to shop around, which is often the
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most difficult part of getting a loan.
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Peak Fintech reduces friction on the lender side by putting the right businesses who want
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the right-sized loans right in front of them based on pre-established criteria. That means
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businesses win 3 different ways: they don't need to spend as much money on advertising,
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they don't need to spend as much money analyzing risk, and they don't need to spend as much
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time talking to businesses only to find out half way through the process that that business
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doesn't qualify for the loan. That's a LOT of friction taken out of the process on both
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sides and both sides should want to pay for that service. And guess what; they do want
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to pay for that service. In 2018, Peak Fintech helped with over 2500 transactions and had
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less than 2% percent of those loans default. In 2019, they expanded to 2 other cities and
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7 exed their revenue, from $1.6 million dollars to $11.7 million dollars, and in 2020 they
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acquired the Jinxiaoer loan brokerage platform, expanding their footprint to 40 thousand loan
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sales reps over 31 cities, and more than tripled their annual revenue again to $42.7 million
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dollars. These physical financial centers help them collaborate with the cities they're
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in and foster lending activities with lenders, businesses, and government officials that
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want that face-to-face interaction. But didn't I just say that physical bank branches are
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bad? In my opinion, that's true here in the US but there's no one-size-fits-all banking
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solution for the whole world; face-to-face interaction is an important part winning the
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ability to do business from the Chinese government and city officials, not just doing business
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once you've approved. It's a different system there and Peak Fintech feels they need that
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physical footprint to expand their reach today, in a digital world. Peak Fintech is expanding
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their reach in a few ways. The first is by partnering other service providers to help
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expand the list of things they can help small businesses do. This includes partnerships
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with massive distributors that work with Chinese retail giants like JD.com, which is in ARKF
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and ARKQ today. These distributors have access to hundreds of thousands of stores and retail
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clients. They also have a business unit that focuses on payment processing to help facilitate
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the actual financial transactions between these lendors and vendors, including much
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sought-after services like cash advances. Peak Fintech is also expanding to adjacent
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markets, like social media influencers, which are a popular and powerful marketing tool
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in the Southeast Asia region. Remember my video on Sea Limited, when I talked about
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Shopee's international expansion and the importance of understanding local markets and cultures?
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[JACKIE CHAN] You're welcome.
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Well, Gruppo Coin, Italy's largest department store chain, has thousands of these influencers
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and Peak Fintech is willing and able to treat them as small business and help them secure
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short-term loans. Overall, Peak's path to growth involves opening more financial centers
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in more cities, partnering with more logistics solutions to help businesses with their supply-chains,
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getting in the door with more of China's biggest retailers, and of course, eventually expanding
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overseas. If we zoom back out, we can see that Peak Fintech is trying to be the connective
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tissue between businesses, service providers, and financial institutions and charges a fee
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for every transaction inside their ecosystem. When it matches a lender and a vendor, it
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charges a service fee on the transaction. When businesses use Peak's platform to procure
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products and their other supply chain services, there are service fees at various parts of
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that value chain, and so on. It has 6 business units in total that all take service fees
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based on what they're providing and to whom. These service fees range from one to four
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percent, depending on the size and type of the transaction. That's the business model,
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but before I talk about the financials, let me point out a few things about the STOCK.
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First, Peak Fintech is actually a Canadian company and the operations of those six business
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units are actually handled through their Chinese subsidiaries. This stock is not an ADR, so
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these are direct shares there's no concern of de-listings, unlike stocks like Alibaba
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and Nio. Second, its focus on small and medium sized businesses is in alignment with where
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the Chinese government wants to see growth in production and employment. Peak Fintech
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is helping the little guy, not the tech giants. Third, because Peak Fintech is business to
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business, they're not dealing with sensitive consumer data directly, which is what a lot
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of the regulatory crackdowns were focusing on. Consumers cannot provide funds on the
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platform as with Lending Club or Prosper; all the lenders are banks or financial institutions.
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So, in my opinion, a lot of the Chinese regulatory risks and concerns about future de-listings
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don't apply to Peak Fintech. Here's a Zacks Research report published a couple weeks ago,
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which does a great job aggregating and organizing all of Peak's most recent financials. Since
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this isn't a first-party source, I went ahead and checked all the actuals against previous
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Peak Fintech reports and they all match up, for example, the 11.7 million dollars of annual
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revenue in 2019 versus the 42.7 million in 2020 that I showed you earlier. At the start
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of September, Peak Fintech was trading on the OTC Markets under the ticker symbol PKKFF
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but is now on the NASDAQ as TNT. As you can see, Peak Fintech is roughly tripling their
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revenues year over year, pretty much regardless of what quarter you look at. I also want to
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point out that institutions don't hold this company yet. I'm not a financial advisor and
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this is still a very young company, but in my opinion, this is an opportunity to get
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out in front of the big guys and ride the wave when they drive the price up. And, like
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I said earlier, this would be a perfect fit for Cathie Wood to hold in ARKF, so maybe
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one of those institutions could even be ARK Invest.
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The thing I really like about this Zacks report is that it tries to fill in the gaps. Given
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the lack of China-based fintech platforms, they use the US and Canadian names they think
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are comparable. They look at the enterprise value to sales ratio of these companies, take
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out the highest and lowest companies, then calculate the average ratio for the rest.
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I think this enterprise value to sales ratio is a fair way to value companies that are
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still in growth mode. Zacks estimates Peaks 2021 sales will be around $96 million dollars
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and their enterprise value at just over 1.4 billion dollars. If you give peak an EV to
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sales multiple of 14.9, which is this average, you get $13 dollars per share. It's currently
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trading at under $10, so that's a 30% percent upside. If you go by Peak Fintech's 2022 sales
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estimates at an 11.6 EV to sales multiple, the stock could be $32 dollars per share next
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year, representing a 3X opportunity from the ten dollars it is today. One thing I always
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like to do is consider what happens if the company greatly under-performs. Let's say
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they only get two thirds of the sales they expect in 2022, so $160 million instead of
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238 million. That's still a share price of over 21 dollars using these same multiples,
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so over a 2X in a year and and around $10 dollars today, instead of $13. There are obviously
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a ton of financial metrics we can look at, but when it comes to hyper-growth companies,
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I find that financials can change really quickly from quarter to quarter, especially if there's
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a big acquisition, which I always harp on when I cover earnings. The one other metric
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I'll point out here is the ratio of assets to liabilities. We want to make sure they're
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not taking on too much bad debt in order to grow. They currently have about 61 million
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dollars in assets and about 31 million dollars in liabilities, so a healthy asset-to-debt
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ratio of about 2 to 1. However, that ratio was at 2.35 last quarter, so it did shrink
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quite a bit and we should keep looking at it over time to make sure they're not taking
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on too much debt compared to their assets. I think their financials are sound but I'll
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include a link directly to Peak Fintech's investor presentation, as well as this Zacks
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report on Peak Fintech in the description below so you can check out all of their financial
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information for yourself; both documents are fairly short and do a great job summarizing
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what the company does, how they do it, and whatever financial metrics you personally
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look at for these volatile, high-growth companies.
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Comment below or tweet me at ticker symbol YOU with your thoughts on Peak Fintech, ticker
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symbol T N T. Do you think that T N T could end up in ARKF one day or do you think I'm
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missing something big? Do you invest in companies overseas or stick to companies that operate
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in your local markets? Is the explosive growth of this company exciting to you or do you
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think it's too soon to tell? I'm excited to hear your thoughts, because as of right now,
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I plan on buying TNT again in my $100,000 dollar portfolio, which I'll be opening if
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and when Ticker Symbol: YOU hits 100,000 subscribers. The goal of that portfolio is to use all the
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research and data I've been going over since I've started this channel to show how I would
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grow an account starting from a clean slate, knowing what I know today. Just like some
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investors compare their performance to the S&P500, I'll be comparing mine to ARKK, ARK
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Invest's flagship innovation fund, over a 5 year time horizon — or until I have to
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admit defeat. Either way, the goal is to provide a fun and interactive investing experience
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for my awesome community. If you want to learn more about that project or the other holdings
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in my personal accounts, check out my portfolio reveal episode, where I share pretty much
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every investment I've made since I started the channel – no fluff, just data. I'll leave
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a link to it in the top right hand corner of your screen right now and in the description
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below as well. I think you'll really enjoy it. Until next time, this is ticker symbol
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you. My name is Alex, reminding you that the best investment you can make… is in you.