Up 128% in 3 weeks: ASX small-cap to buy after massive catalyst

This finance company's journey has been mixed since listing in 2020, but the team at Forager is bullish after recent events.

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Take yourself back to the afternoon Monday 27 November and imagine you were an investor in Plenti Group Ltd (ASX: PLT) shares.

You'd be feeling aggrieved that the ASX small-cap stock had lost almost half your money since January. The money-lending business is seeing growing revenue but keeps burning cash.

But look what's happened in the three weeks since.

The Plenti share price has rocketed 128%.

Not only has it made up all the losses since January, it's 21% up above that peak.

What is going on here?

'Decent' annual result

The team at Forager Australian Shares Fund, which is invested in Plenti, reported that the company's financial result was announced last month.

"The company's financial result was decent, delivering $1.5 million of cash net profit after tax," it stated in a report to clients.

"Its $2 billion loan book was 29% higher than the prior year. And bad debts, while rising, are still within expectations at just under 1% of portfolio value."

Pleasant enough, but is that really worth a doubling of the stock price in 20 days?

Of course not. The major catalyst was a new deal with National Australia Bank Ltd (ASX: NAB).

"The behemoth will use Plenti to underpin the technology for its auto loan offering, including loan applications, credit assessments and loan management. 

"Importantly, Plenti does not put its balance sheet to work in the deal, instead making a fee for each loan written and serviced."

Forager analysts calculate that if the loan book from NAB grows to $1 billion, it would be worth $20 million of "high-margin revenue" for Plenti.

"With NAB's brand name and marketing, this looks likely."

The boost that this small cap badly needed

Plenti listed on the ASX in 2020, but it's been a bumpy ride since. The NAB partnership brings the small-cap stock much needed credibility, according to the Forager memo.

"The deal is a big validation for Plenti's lending technology and the company's value."

The $134 million company is sparsely covered by professionals, but CMC Invest shows at least Wilsons Corporate Finance agrees with Forager's bullishness.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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