The initial public offering class of 2014 was surely an elite group. 275 companies raised a combined $85 billion, the highest amount since 2000.

High-profile companies such as Alibaba Group Holding Ltd. (NYSE: BABA) led the pack, scoring a sharp 38% first-day gain. Yet other notable IPOs that managed to generate impressive first-day gains eventually fell out of favor.

Roughly six months ago, I cautioned against chasing shares of LendingClub Corp. (NYSE: LC), after shares had surged roughly 60% from the IPO price. “Investors may want to consider waiting for a better entry point as enthusiasm wanes,” I noted then.

Still, I have been keeping a close eye on the shares, as this banking game-changer held vast long-term potential.

Although the stock has fallen nearly 40% from its post-IPO high, several deals subsequently signed with powerhouses like Google, Inc. (Nasdaq: GOOG) and Alibaba should boost growth over the next several years. Revenue is already expected to grow 85% this year and the company’s industry — peer-to-peer lending — is projected to grow 40% a year for the next decade.

The Future Of Banking Is Online
Peer lending has gone from being an internet curiosity to a mainstream financial alternative over the last several years. Loans originated through peer lending reached $5.5 billion in 2014 with accounting firm PwC estimating growth to $150 billion or more by 2025. Venture capitalist Charles Moldow estimates the industry will hit $1 trillion over the period.

#-ad_banner-#Even the lower estimate represents a compound rate of 39% annually over the next decade. The $150 billion estimate is based on peer lending reaching just 10% of the $800 billion market for revolving consumer debt and 5% of the $1.4 trillion market for non-revolving consumer debt. With the advantages of peer-to-peer lending over traditional banks, growth is likely to be much higher.

Investor demand is fueling strong growth in peer lending with returns on other fixed income products offering next to nothing. The 5% historical return on the safest category of peer loans is well above the average yield of 3.2% on U.S. investment grade corporate bonds. Rates on peer loans range as high as 8.9%, compared to an average rate of 6.1% on junk-rated corporate debt and a 10-year compound annual return of 7.6% on the S&P 500. 

Not only is investor demand pushing growth in the peer-to-peer space, operational costs on peer lending are 4.25% lower compared to costs at traditional brick-and-mortar banks. Most of the advantage (2.2%) comes from not having costs associated with a branch location. Another 1.3% advantage originates from customer service and collections costs.

The future of banking is online and peer lending carries the added benefit of strong investor demand.

That’s why I watched eagerly as LendingClub, the largest peer lending platform went public in December. Yet the initial investor exuberance couldn’t support an enterprise valuation of 52 times trailing revenue. Shares are now just below my buy-under price, and are valued at an enterprise value of 34 times sales. That is pretty high, but still reasonable considering expected sales growth of 84% this year and 55% next year.

The company reported $1.63 billion in loan originations during the first quarter, growth of 106% from the same period last year. Revenue of $81 million topped analyst estimates by 7%, and management expects second quarter sales to top $90 million.

The mix of loans on the site has stayed consistently weighted to lower risk borrowers since 2012. The platform does not accept sub-prime borrowers and 68% of originations are in the highest three-of-eight risk categories. The platform is not lowering credit standards to increase origination, as some had feared, and the average borrower credit score is over 700 on the FICO scale. 

Lending Club announced a deal with Citigroup, Inc. (NYSE: C) for low- to moderate-income borrowers and with HomeAdvisor for home improvement loans during the Q1 earnings call. The company had previously announced a deal with Google to offer low-interest business loans and a deal with powerhouse Alibaba to offer business loans to U.S. companies expanding into China.

These deals, along with the adoption of peer lending as a mainstream way to get credit, will help LendingClub expand its loan offerings into other markets and loan types. LendingClub still has the opportunity to open operations in five more states for borrowers and 22 states for investors, as it works with state security regulators’ offices. With LendingClub now listed on the New York Stock Exchange, the company should have the credibility it needs to expand into a truly nationwide platform.

Assuming no change to cash or debt, my price target of $25 per share remains unchanged for an enterprise-to-sales ratio of 30 times expected 2015 sales ($390 million) and 8.6 times expected 2016 sales of $624 million. Even on a 45% upside from the current trade, I would be a long-term holder of the shares as peer lending becomes the way to get a loan over the next decade.  

Risks To Consider: Shares of Lending Club are still relatively expensive against most other stocks and a hit to investor sentiment could send this stock lower.

Action To Take –> Take advantage of the lull in investor sentiment for Lending Club to position in the leader within an industry expected to grow at 40%+ over the next decade.

Oftentimes the little ideas are the big game changers — something like a cure to super bugs. My colleague Andy Obermueller devotes his time to identifying game-changing trends and the companies that should benefit from this. This has led readers to investments that went on to gain triple-digits.

More recently, Andy has been talking about the threat that cyber criminals pose on individuals, multinational corporations and even governments. This is a serious problem, in its infancy and one that will take decades to fight. But don’t let this scare you. Andy has identified four companies that specialize in protecting sensitive information from criminals. These are young firms, which provide robust upside potential for early investors. If you haven’t heard about this opportunity yet, then I urge you to check out his comprehensive report on how to profit from the world’s greatest threat, by clicking here.