Pagaya (PGY) is an Israeli fintech company working to reshape the lending marketplace by using machine learning, big data analytics, and sophisticated AI-driven credit and analysis technology. PGY stock, which showed up in the headlines a few weeks ago due to its massive stock price appreciation, could see a sell-off in the near future, as the lock-up period could be ending sooner than expected.
That massive increase in stock price is speculated to have been caused by the lack of actual shares of the company that are available to trade, known as the “Free-Float.” Low “Free-Float” can occur in cases where large portions of the total outstanding shares of a company are owned by insiders of the company, such as Directors, C-Level executives, etc.
The Free-Float can also be low due to the amount of restricted shares that are granted to employees as part of their compensation package. The shares are restricted because they haven’t vested yet or are still in their lock-up period.
Additionally, low Free-Float can result from a high number of restricted shares of early investors following an IPO (Initial Public Offering) or a SPAC (Special Purpose Acquisition Company) merger. Those shares are also subject to lock-up period restrictions.
PGY Stock and the Low Free-Float Phenomenon
The low free-float phenomenon can be easily manipulated and taken advantage of by sophisticated participants in the stock market. That might explain the recent astronomical growth of Pagaya.
Pagaya went public through a SPAC merger with EJF Acquisition Corp. Due to the special structure of SPAC mergers, at the end of the Pagaya’s merger there were only about 0.1% of shares that were left to actual trading (“Free-Float”). This happened because many (96.7%) of the SPAC early investors chose to exercise their right to redeem their shares for cash at a redemption price of approximately $10.00 per share, prior to the completion of the merger.
In the case of Pagaya this could be particularly interesting. Usually, when a stock goes public through an IPO or a SPAC, there is a certain amount of waiting time until the investors and the employees in the company can be allowed to sell their stock or exercise their stock options. This waiting time is called the “Lock-up” period.
With regards to Pagaya, the company went public through a SPAC on June 22, 2022. This is known as the “Closing Date,” similar to an IPO date.
In its filing with the SEC, Pagaya has stated the terms under which the first 50% of the locked-up equity could be sold. In Pagaya’s case, the earliest date in which locked-up shares could be sold is 90 days after the “Closing Date.” For this clause to come into effect, the VWAP has to be above $12.50 for 20 trading days during any 30 consecutive trading days commencing on the Closing Date (June 22).
What is VWAP?
VWAP is “Volume weight Average Price.” it’s a term mostly used in day trading, and basically means the average price at which most of the trading volume occurred.
When is PGY’s Lock-Up End Date?
Tipranks has calculated that since July 27, 2022 the VWAP of Pagaya has been above $12.50, so the count is on. Today, August 22, 2022 we mark the 20th consecutive day in which Pagaya’s VWAP has been above $12.50. This means that the condition to end the lock-up period time for 50% of the locked equity will come into effect, and we therefore expect the lock-up period to end early, on the week starting September 18th 2022.
It will be interesting to observe the stock’s reaction once the VWAP clause is fulfilled, and it will be even more intriguing to see PGY’s reaction once the lock-up period is over. The expected behavior would be volatile price action favoring the downside, as stockholders like early investors and employees would like to “cash out” as soon as possible. That’s especially likely, considering Pagaya’s inflated price and market value.
Who is likely to cash out and earn big from the earlier end to the lock-up date? Among the early investors in Pagaya are Chase Coleman from Tiger Global Management, who holds about 15% of Pagaya, and Oak HC who holds about 14.29%, as well as insider Emanuel J. Friedman (EJF Acquisition Corp., from the SPAC merger), who holds about $75M worth of stocks. You can follow Friedman’s portfolio here.
