As the Amigo share price soars, is it too late for me to buy?

After two very poor years, the Amigo share price has performed strongly in 2021. But is there further to rise or is this stock way too risky?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young casual man and girl using laptop while looking at invoice and plan the budget to save.

Image source: Getty Images

The Amigo (LSE: AMGO) share price has performed excellently in 2021 so far, rising by over 200%. Such a strong performance has been driven by more shareholder optimism. Nonetheless, as a subprime lender, Amigo is extremely exposed to risk. This has been made worse by customer complaints and worries over the company’s liquidity. Its current price of 26.5p is therefore still a long way off its 2019 price of 270p. As such, is there a chance that the stock can claw back more of these losses, or has the 2021 share price rise now come to an end?

 

The subprime lending industry

As a subprime lender, Amigo lends to customers with very poor credit histories who cannot borrow from a traditional bank. Although these loans generate large amounts of interest, defaults are also common. This means that the guarantors often have to pay off the loans, and this has led to a large number of consumer complaints.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Coronavirus has also had a negative impact on the subprime lending industry and the Amigo share price. Indeed, as of January this year, Covid-19-related payment holidays had been granted to over 63,000 customers. As the company only had 156,000 customers at the end of 2020, it is evident that the pandemic has had a severe impact on a large number of Amigo customers. This also led to a pause on all new lending until 2021, resulting in decreased revenues.

Furthermore, it has recently been reported that another major name in the sector, Provident, is getting rid of its subprime lending arm. Although this may reduce competition for Amigo, it shows that subprime lending is not a healthy industry right now.

Consumer complaints and scheme of arrangement

Amigo has also been inundated with mis-selling claims after customers accused the firm of failing to carry out basic financial checks. Unfortunately for the company, the financial ombudsman has found in favour of the customers in the majority of cases. This has led to it applying for a scheme of arrangement. This plans to cap compensation payments to a maximum £35m and 15% of profits over the next four years. News that the FCA would not oppose the deal has also seen the Amigo share price rise rapidly.

Implementing this scheme of arrangement is vital for Amigo’s survival. Indeed, management has warned that without the scheme of arrangement, it will have to file for administration. Such a result would be catastrophic for shareholders, who could be left with absolutely nothing.

Has the Amigo share price got further to rise?

Fortunately, it seems that the scheme of arrangement is likely to be implemented and this should benefit Amigo greatly. Furthermore, new management also seems keen to “get Amigo back to life again”. Recent insider buying from the CEO and the CFO has perhaps given reason for optimism on this front. It shows that management believes the Amigo share price has further to rise.

Nonetheless, I’m not convinced that the Amigo share price will be able to rise much further. The subprime lending industry is evidently struggling and there is the chance that the company will have to file for administration. This makes Amigo shares too risky for me. 

More on Investing Articles

Woman looking at a jar of pennies
Investing Articles

I think the JD Sports share price is a bargain. Here’s why

Our writer explains why the JD Sports share price has led him to buy more for his portfolio.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is this tech stock one of the best shares to buy now?

Jabran Khan is on the hunt for the best shares to buy now for his holdings and takes a closer…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

3 top FTSE 250 shares to buy right now

I think the FTSE 250 is offering some great dividend and growth shares at the moment. And there are plenty…

Read more »

Happy retired couple on a yacht
Investing Articles

This growth stock has seen its shares pull back! Should I buy now?

When a growth stock sees its share price drop, I look carefully to see if I could pick up a…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How to identify the best income shares like this one

Income shares vary in quality but this approach keeps me from making some of the worst howlers with dividend investing.

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

If I’d invested £1k in Tesla shares a year ago, here’s how much I’d have now

If Jon Smith had bought Tesla shares a year ago, he'd be in profit. But he has some concerns for…

Read more »

Twenty pound notes in back pocket of jeans
Investing Articles

Should I buy tobacco shares now for big dividends?

After a possible setback for electronic cigarettes, our writer explains why he would still buy tobacco shares for his income…

Read more »

a couple embrace in front of their new home
Investing Articles

3 FTSE shares I’m buying with the Help to Build scheme!

Last week, the government launched a new, Help to Build scheme. So, here are three FTSE shares that could benefit…

Read more »