Here’s Why Blue Tower Asset Management Brands Enova (ENVA) as a Resilient Business

Leandro Mortenegro

Blue Tower Asset Management LLC, an investment management firm, published its third-quarter 2022 investor letter – a copy of which can be downloaded here. The Blue Tower Global Value enjoyed another strong quarter of relative performance with its composite losing only -2.95% net of fees (-2.68% gross) in Q3 2022, much less of a decline than the overall market. Try to spare some time to check the fund’s top 5 holdings for you to have an idea about their best stock picks this 2022.

In its Q3 2022 investor letter, Blue Tower Asset Management mentioned Enova International, Inc. (NYSE:ENVA) and explained its insights for the company. Founded in (year founded), Enova International, Inc. (NYSE:ENVA) is a Chicago, Illinois-based alternative financial services provider with a $976.3 million market capitalization. Enova International, Inc. (NYSE:ENVA) delivered a -25.54% return since the beginning of the year, while its 12-month returns are down by -15.47%. The stock closed at $30.50 per share on October 19, 2022.

Here is what Blue Tower Asset Management has to say about Enova International, Inc. (NYSE:ENVA) in its Q3 2022 investor letter:

“One of our portfolio holdings that we believe will be relatively resilient is Enova International (down 26% YTD). We last wrote about Enova in our Q3 2018 letter. Since that letter, the trailing twelve-month earnings of the company have quadrupled and tangible book value per share has grown more than 12x. Despite that huge growth, their stock is trading at almost the same price it was back then!

Enova is a subprime lender that uses machine learning methods to provide an automated underwriting of loans for a variety of different loan products. Enova has traded down to an extremely cheap valuation despite having strong organic growth and recently acquiring OnDeck Capital, a small business lender, at a bargain valuation. Enova is still in the process of realizing all of the synergies of combining its core business with OnDeck Capital and we should expect this combination to perform even better in the future. Enova’s current cheap valuation is the result of two main fears; the regulatory risk against high interest loans and the potential impact that an impending recession will have on the company.

Business Overview

Enova is an online-only subprime lender that originally spun out of Cash America International in 2014. As an online-based business, they have more flexibility to scale up or scale down their lending than the brick-and-mortar lenders they have displaced. Another key advantage is that they are constantly building up data on their interactions with customers and can determine which customers are better credit risks. New pools of customers tend to be less profitable to Enova than seasoned ones as the company has not yet figured out which customers are good credit risks. Therefore, in periods of business growth, we should expect the company to have compressed margins compared to their steady state. During 2020 and 2021, Enova became more conservative in their underwriting and faced reduced customer demand resulting in their net charge-offs falling dramatically to the lowest levels in the company’s history…” (Click here to see the full text)

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Our calculations show that Enova International, Inc. (NYSE:ENVA) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Enova International, Inc. (NYSE:ENVA) was in 16 hedge fund portfolios at the end of the second quarter of 2022, compared to 21 funds in the previous quarter. Enova International, Inc. (NYSE:ENVA) delivered a -9.06% return in the past 3 months.

In March 2022, we also shared another hedge fund’s views on Enova International, Inc. (NYSE:ENVA) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q3 page.


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Disclosure: None. This article is originally published at Insider Monkey.

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