Investor sentiment has cratered in recent times in the wake of 40-year-high inflation, the Federal Reserve's decision to raise interest rates in response, and prolonged concerns in connection to Russia's invasion of Ukraine. With investors flocking to value stocks and safer assets for protection, shares of fast-growing technology companies have been especially crushed. While the ongoing correction may continue exerting downward pressure on the technology sector in the coming quarters, many stocks are now trading at tempting valuations.
SoFi Technologies (SOFI +2.10%) posted strong first-quarter results on May 10 that eased some of the negative sentiment that has been directing the stock of late. Even so, the growing fintech is still down almost 70% in a six-month span, a steep downswing compared to the S&P 500, which has fallen 13% over the same timeframe.
The company's pullback has attracted the attention of CEO Anthony Noto. Since March, Noto has purchased nearly $1.5 million of SoFi shares, sending a signal to investors that he thinks the company is undervalued. Let's examine whether investors should follow the "smart money" and buy SoFi stock right now.
Image source: Getty Images.
The growth story continues
SoFi provides an array of financial products including student and auto loan refinancing, mortgages, personal loans, credit cards, investing, and banking via mobile app and desktop. The company reported total revenue of $321.7 million in Q1, beating Wall Street estimates by 13%, and its net earnings loss of $0.14 finished in line with consensus forecasts. For the seventh consecutive quarter, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) ended in the green, soaring 110% year over year to $8.7 million. Total members also climbed 70% to 3.9 million, showcasing the company's ability to expand its customer base at a rapid clip.
NASDAQ: SOFI
Key Data Points
Per management's raised guidance, Wall Street analysts are modeling for SoFi's top line to eclipse $1.5 billion in fiscal 2022, translating to 49% growth year over year. While consensus estimates indicate a net loss of $0.46 per share this upcoming year, the company is still expected to take a great leap forward from its $1-per-share net loss a year ago.
I'm particularly impressed with the company's steady financial improvement given its current headwinds. The student loan moratorium has now been extended six times, and although its lending business increased 45% year over year in Q1, the company's student loan origination volumes remain at less than half of pre-pandemic levels. Upon expiration of the suspension, the potential for SoFi's lending business will increase dramatically. Now trading at below six times sales, the fintech company -- which participates in a multi-trillion dollar industry, appears too enticing to pass on at the moment.
A favorable risk-reward scenario today
SoFi, which is currently trading at just 27% of its 52-week high, grants investors a strong margin of safety at today's price levels. Noto certainly agrees -- the CEO has been slowly adding shares of the promising fintech company for several months now, having increased the number of shares he owns by 45% since June 30 of last year. While insiders may sell stock for a variety of reasons, they typically only buy shares for one: They think the company is undervalued. And while it's important to conduct your own due diligence, insider buying is a positive indicator of a company's financial health.
SoFi has watched is valuation crumble in past months despite demonstrating material improvements to its business. At current levels, investors who can ignore short-term noise and focus on the long-term trajectory of the company should consider pouncing on SoFi stock. Boasting a market potential upward of $13 trillion, the financial technology company enjoys a runway for growth that is hard to ignore. It might not be a bad idea to follow Noto's lead and scoop up shares of this fast-growing stock today.
