This year is bringing good tidings for investors as the market continues to climb. On the one hand, that's not surprising, because a year when the market is down is almost always followed by a year of gains. On the other hand, inflation is still a problem, and many companies are feeling its pinch. That makes it counterintuitive for stocks to jump.
The tech sector got hammered last year, and it looks like investors think it got overdone. It's now lifting the market despite continued economic volatility. Fintech company SoFi Technologies (SOFI -1.70%) stock plunged 71% last year, but it's now more than doubled in 2023. Here's why it's a great stock to own for the future.
1. It's become a well-diversified player
SoFi was created for university students to benefit from better lending programs, and it quickly snowballed into a full student loan refinancing company. But on a mission to make finances easier for members, it has branched out into a broad suite of financial services, including personal loans, mortgages, investing, and more. It bought Golden Pacific Bancorp last year to acquire a bank charter, giving it an opening to offer more sophisticated lending products. This strategy has been pivotal in helping it thrive under adverse circumstances.
It added 433,000 members to the platform in the 2023 first quarter for a total of 5.7 million, a 46% year-over-year increase. As it offers more services, more people are attracted to both specific services as well as the idea of a one-stop financial services app.
Customers adopted 660,000 new products in the quarter, which means there's a good amount of cross-selling and upselling going on.
Perhaps most acutely, this strategy has saved it from what would have been a potential implosion when the government paused loan repayments. Student loan originations decreased 47% from last year in Q1, but as it now is only a piece of the total pie, it's impact was less significant on SoFi's overall performance.
All of this is leading to exceptional performance that isn't stopping even given the nation's economic flux -- revenue increased 43% in Q1 2023.
2. Profitability is improving
SoFi still isn't net profitable, but its profitability metrics are improving.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $76 million in Q1 2023, up from $9 million last year and $70 million in Q4 2022. It also beat its forecast of $40 million to $45 million. The net loss was $34 million, which was a marked improvement from last year's $110 million net loss.
Management attributed much of its success to its Financial Services Productivity Loop (FSPL) strategy, which generates higher product adoption and leads to greater marketing efficiencies. This is another way the diverse product mix is creating value at SoFi.
SoFi bank is also contributing to profitability. Deposits increased 37% over last year to $2.7 billion at a lower cost of funding, leading to higher net-interest income and wider net-interest margin. SoFi bank posted $73 million in net profits.
3. It's priced to buy
No one is going to call SoFi stock cheap at this price. The shares trade at more than 5 times trailing-12-month sales, and that's higher than the average since it went public two years ago.
However, it's still reasonable for a company with this kind of momentum, despite a tumultuous climate, that's also getting closer to profitability. You can wait for a pullback to get a better deal, but you can't time the market. If you can envision SoFi delivering strong gains over the next 10 years, and you have that time, now is a good time to buy the stock.
