OppFi's NCO Rate Falling: Is Risk Mitigation Strategy Paying Off?

OppFi OPFI has witnessed a consistent contraction in its Net Charge-Off (NCO) Rate over the past few quarters. The NCO rate, measured as a percentage of total revenues, stood at 42% in the fourth quarter of 2024, down 400 basis points (bps) from the year-ago quarter. The trend continued in the first quarter of 2025, as the NCO rate dipped 700 bps sequentially to 35%.

The company achieved a new low in the second quarter of 2025, with the NCO rate touching 32%, hinting at a 300-bps sequential fall. This consistent dip in this metric boasts impressive credit quality achieved through operational initiatives that succeed in effective loss prevention.

On the same note, the annualized NCO rate, as a percentage of average receivables, followed the downward trajectory. This metric moved from 54% in the fourth quarter of 2024 to 47% in the March quarter of this year. This whopping 700-bps sequential fall was followed by a sequential decline of 400 bps to 43% in the June quarter. This multi-quarter trend solidifies OppFi’s effective strategy of lending to high-quality borrowers within the underserved population.

OPFI’s technical prowess, displayed in the form of its AI and machine learning based underwriting model, Model 6, played a vital role in managing credit risks. This model was created to assess risks and predict long-term loan performance. Using this advanced technology, the company improved its loan auto-approval rate from 79% in the March quarter to 80% in the recently reported quarter.

A rising auto-approval rate, while maintaining a downward trajectory in NCO rate, speaks volumes about the company’s risk management strategy.

The company’s risk mitigation initiatives have provided a significant boost to its growth metrics. In the second quarter of 2025, OPFI achieved record quarterly revenues of $142 million, up 12.8% from the year-ago quarter. Similarly, adjusted net income soared 59% from the year-ago quarter.

The ability to grow profitably while maintaining strong credit quality signals financial resilience. Banking on its internal risk-selection strategy, the company has positioned itself to swim through economic headwinds while maintaining profitability.

OPFI’s Price Performance, Valuation & Estimates

The stock has soared 137.4% over the past year, significantly outperforming its competitors, including Green DotGDOT and PagSeguro DigitalPAGS, which have gained 22.7% and 16.8%, respectively, and the industry average of 12.6%. OPFI surpassed the Zacks S&P 500 composite's 20% rally.

1-Year Price Performance

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From a valuation standpoint, OPFI trades at a forward price-to-earnings ratio of 7.32, lower than the industry’s 20.32. Green Dot trades at 8.68 and PagSeguro Digital hovers at 6.22.

P/E - F12M

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OppFi and Green Dot have a Value Score of A. PagSeguro Digital carries a Value Score of B.

The Zacks Consensus Estimate for OppFi’s earnings for 2025 and 2026 has increased 15.4% and 4.9%, respectively, over the past 60 days.

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OPFI currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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