Thanks to major changes in regulation, social media and technology, the business of banking has undergone radical change since the Great Recession of 2008. 

And one key area of change has been in the field of lending. Skittish loan officers and costly new banking regulations have limited growth in consumer lending since the end of the recession. 

These factors created an opening for an entirely new breed of banker: Every day consumers, many of whom have cash to lend out to peers. 

Loan originations on peer lending platforms have been growing at an annualized rate of 100% or more since 2012. Compare this with an annual growth of 4% or less in traditional consumer credit at depository banks and you begin to see where lending is going in America.

The idea of peer lending could not be simpler. You have actually been doing it — on an indirect basis — for quite some time. Banks use your deposits into checking and saving accounts as a source of funding for fresh loans. The peer lending platforms cut out the middleman and enable consumers to make direct loans to borrowers. 

This finance niche has clearly arrived in the mainstream, as evidenced by the recent initial public offering of a leading peer-to-peer lender. The question is: Should you buy shares? 

The World’s Largest Marketplace Lending Platform Just Got Larger
LendingClub Corp. (NYSE: LC), which raised roughly $865 million in a mid-December IPO, is the industry’s clear leader. The IPO saw strong demand, and shares are already up more than 70% from the $15 a share registration price. At that price, the company is valued at nearly $9.5 billion. 

Growth on LendingClub’s platform has mirrored the broader industry’s surge. The lending platform originated $3.2 billion in loans over the seven years through 2013 and has almost doubled that in the first three quarters of 2014, reaching $6.2 billion. The company recently began offering small business loans up to $100,000  and unveiled a new two-year super-prime offer that lets customers borrow up to $10,000 at a rate of less than 5%.

The company was profitable in 2013, though heavy spending on product development and on other operational expenses drove a loss for the first nine months of 2014. 

Does Potential Growth Justify A Rich Valuation?
At the current $25 per share, the company’s enterprise value of roughly $10 billion translates into a valuation of 60 times expected 2014 revenue of $165 million. At first blush, this would seem ridiculously high until you consider the potential for continued growth. Even at an annualized pace of $4.2 billion in loan originations, Lending Club’s share is a fraction of the $880 billion credit card market and miniscule compared to the $3.3 trillion consumer credit market. 

Very few financial services firms sport the kind of growth or valuation seen in LendingClub shares. TFS Financial Corp. (Nasdaq: TFSL) trades at an enterprise value of 20 times sales, but has flat sales growth. Nationstar Mortgage Holdings, Inc. (NYSE: NSM) booked annualized revenue growth of 102% over the last three years, but only trades for an enterprise value of 7.8 times sales.

#-ad_banner-#I talked to Ron Suber, president of Prosper Marketplace, for a guest post on my peer lending blog earlier this month. His confirmation that Prosper, the country’s second-largest peer lending platform, would continue to focus on personal loans and not move into small business loans, means that Lending Club may have a huge opportunity to control the space. 

The company is relatively quiet about its plans to use the funds from the IPO, but now has nearly $1 billion that it could use to invest in growth initiatives. Revenue could top $300 million in 2015 and margins should start to improve as the company gets control of its operating expenses. 

While I think the company’s growth could continue for several years, I am starting the shares with a neutral recommendation immediately following the IPO. As the first peer lending platform to go public, the market probably got a little exuberant to jump in on the growth story. 

My own target for $25 per share was exceeded on the second day of trading. You could buy at this level and still likely realize a good long-term return, but there is a good chance that the enthusiasm will come out of the shares, as often happens with hot IPOs.  That means you may be able to buy shares at a better price over the next six months. I have a buy-under price of $20 per share and am reaffirming my $25 target for the first year.

Risks To Consider: Lending Club has benefited from relatively little competition to date. Only it and Prosper offer peer loans to non-accredited investors in the United States. Increased competition over the next couple of years could slow the company’s sales growth.

Action To Take –> Shares of Lending Club surged 56% on the first day of trading and may be getting ahead of itself, even as you account for strong current growth. Investors may want to consider waiting for a better entry point as enthusiasm wanes.

Lending Club has the power to turn the banking industry on its head, which is why our premium newsletter Game-Changing Stocks wrote about it a few weeks ago. This newsletter is devoted to finding companies with that up-end their industries and have the potential to offer investors triple-digit gains. For more information about the next company to change the markets — and possibly the world — click here.