Why Pagaya Stock Exploded Higher Today

Artificial intelligence (AI)-assisted fintech stock Pagaya Technologies (NASDAQ: PGY) soared 20.2% through 10:05 a.m. ET Monday after beating on sales and crushing on earnings.

Heading into the Q3 report, analysts forecast Pagaya would earn $0.66 per share on sales of $338.9 million. Sales edged out the estimate at $339.9 million, and earnings hit $1.02 per share.

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Pagaya's Q3 earnings

Pagaya boasted that in Q3 it hit "record performance across all key metrics." Payments volume surged 19% year over year to $2.8 billion. Revenue collected from these payments rose 36% to $350 million. Earnings on that revenue flipped from negative to positive -- $23 million.

Admittedly, earnings as calculated according to generally accepted accounting principles (GAAP) were a bit less than the $1.02 per share in non-GAAP, pro forma earnings noted. Pagaya only earned $0.23 per share, GAAP -- but that was still a heck of a lot better than losing $0.93 per share, as it did in last year's Q3.

Is Pagaya stock a buy?

Best of all, Pagaya notes that it has now generated $158.8 million in positive operating cash flow year to date -- nearly eight times its haul through this time, last year. Capital spending furthermore declined year over year, to $10.8 million, leaving the company with positive free cash flow of $148 million, and on track to generate cash profit of perhaps $198 million this year.

If things keep improving at their current pace and Pagaya hits that number, its FCF will be more than twice raised guidance for $72 million to $82 million in current-year earnings, and the stock will be selling for a price-to-free cash flow ratio of just 11.2x.

For a company growing as fast as Pagaya is, that's a steal of a deal.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Pagaya Technologies. The Motley Fool has a disclosure policy.