Banks come with unfavorable characteristics, but SoFi is bucking the trend.
SoFi Technologies (SOFI -2.71%) hasn't fully benefited from the favorable market environment that's seeing some stocks hit fresh records. Yes, shares soared 116% in 2023. But they still remain 71% below their all-time high. That's partly due to a significant loss so far this year.
Don't be discouraged. This fintech stock has some positive traits that warrant a closer look. Here's what investors should know.
Finding remarkable success
In the internet age, companies that are able to provide customers with a better user experience are going to find success. That's certainly been the case with SoFi. Its current customer base of 7.5 million is fourfold larger than it was just three years ago.
This is a fully digital bank with no physical branches. That helps hold down overhead costs and attract a younger and more affluent clientele. That latter factor helps lead to better loss ratios. Moreover, SoFi's success has spurred banking heavyweights to also start investing in their own digital efforts.
I touched on the company's customer growth. This has resulted in tremendous revenue gains. Last year, SoFi reported that its revenue increased 35% year over year to $2.1 billion. This represented a slowdown from previous years, but it's an impressive gain no doubt.
Shareholders are excited about the fact that SoFi generated its first net profit in Q4 in accordance with generally accepted accounting principles (GAAP). Management expects the bottom line to skyrocket in the years ahead, as the business starts to scale up and leverage its operating costs.
The issue with bank stocks
I think there's a lot to like about SoFi. But investors should know about certain factors that make investing in banks stocks unappealing. Not only is there intense competition in the industry, from huge global financial institutions all the way to small credit unions, but banking products are largely commoditized with little opportunity for premium pricing. Moreover, banks experience cyclicality dependent on changes in interest rates and the health of the economy.
To SoFi's credit, though, it has clearly found what works in bringing on new customers in droves, increasing revenue, and getting to improved profitability. The hope for shareholders is for this trend to continue in the years ahead.
I'll also point to the company's surging deposit base, which went from $7.3 billion at the end of 2022 to $18.6 billion at the end of last year. SoFi offers one of the highest savings rates in the industry, helping it draw in deposits that can fund loan originations. This is a clear indicator of its recent success. Moving deposits to SoFi could be the start of a customer potentially using many more of the company's products over time.
Is the valuation attractive?
With the stock currently down 23% in 2024, investors can scoop up shares at a price-to-sales (P/S) ratio of 3.3. That's cheaper than SoFi's historical average. For businesses that are registering huge growth, like SoFi is, the P/S multiple is a popular valuation tool.
But given that this is a banking enterprise, the price-to-book (P/B) ratio is also a worthwhile method. This compares the company's stock price to its book value per share.
Because banks typically have to report their assets and liabilities on the balance sheet at market value, looking at book value can give us a decent estimate of what SoFi should be worth. As of this writing, the stock carries a P/B ratio of 1.48. A number under 1 is considered to be undervalued, but that's for a more mature bank that might not have the sizable potential SoFi does.
The market is valuing SoFi as a combination of a bank and tech stock. I believe this is a fair perspective. The business has performed remarkably well in a higher-rate environment. Of course, investors should watch the fundamentals to make sure SoFi continues posting solid growth and rapidly increasing earnings.
This is a stock to consider buying and holding for the next five years.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
FAQs
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Is SoFi undervalued? ›
SoFi Earnings: Revenue Growth Slows on Lower Loan Growth and Higher Credit Costs. We see SoFi stock as significantly undervalued.
What will SoFi stock price be in 2025? ›
The SoFi Technologies, Inc. stock prediction for 2025 is currently $ 8.00, assuming that SoFi Technologies, Inc. shares will continue growing at the average yearly rate as they did in the last 10 years. This would represent a 14.07% increase in the SOFI stock price.
Is SoFi a safe place to invest? ›
SoFi takes your security very seriously. Upon depositing funds into your SoFi checking and, or savings accounts (including vaults), the balance is FDIC insured up to $250,000 per account holder across all deposit accounts. Joint accounts will be insured up to $500,000.
Is SoFi financially stable? ›
SoFi reported its second consecutive quarter of GAAP net income, achieving $88.0 million in the first quarter of 2024, which includes a $59.2 million one-time benefit from exchanging convertible debt in the quarter. This compares to a loss of $34.4 million in the first quarter of 2023.
What is Warren Buffett buying? ›
Warren Buffett's stock purchases in the most recent quarter include Chubb Limited (CB) and Occidental Petroleum (OXY). HP Inc. (HPQ) and Paramount Global (PARA) are among Warren Buffett's stock sales in the most recent quarter. The Berkshire Hathaway portfolio includes 41 stocks as of May 2024, including Apple Inc.
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Who owns the most SoFi stock? ›
What percentage of SoFi Technologies (SOFI) stock is held by retail investors? According to the latest TipRanks data, approximately 44.18% of SoFi Technologies (SOFI) stock is held by retail investors. Who owns the most shares of SoFi Technologies (SOFI)? Vanguard owns the most shares of SoFi Technologies (SOFI).
A truly robust bank, SoFi Bank offers a number of products. And while SoFi doesn't have any physical locations, customers can access their accounts at more than 55,000 fee-free ATMs across the U.S. via the Allpoint network. SoFi also offers competitive interest rates and doesn't charge any fees.
What are the drawbacks to SoFi? ›
Cons No branches: As an online-only bank, SoFi doesn't provide in-person banking access. No out-of-network ATM reimbursem*nts: Unlike some online banks, SoFi doesn't reimburse ATM fees for out-of-network ATMs.
Is SoFi a buy, sell, or hold? ›
SoFi Technologies has a consensus rating of Hold which is based on 5 buy ratings, 10 hold ratings and 3 sell ratings.
What is the true value of SoFi stock? ›
As of 2024-05-23, the Intrinsic Value of SoFi Technologies Inc (SOFI) is -0.84 USD. This SOFI valuation is based on the model Peter Lynch Fair Value. With the current market price of 7.02 USD, the upside of SoFi Technologies Inc is -112%.
Does SoFi pay dividends? ›
SoFi Tehcnologies Inc Ordinary Shares (SOFI) does not pay dividends. This is the company stock.
Is SoFi a growing company? ›
In the first quarter, SoFi's financial services segment raked in $150 million, or 86% more revenue than it did in the same period last year. The strong growth was driven by higher interest rates, member growth, and deposits that increased 16% in the past year.
Is SoFi paying dividends? ›
There are no SoFi Technologies Inc dividends.
