With shares of SoFi Technologies (SOFI 3.69%) up more than 45% year to date and TransMedics (TMDX 3.17%) rocketing 50% higher in the past week alone, it may seem that investors missed their opportunity with these two stocks.
However, with SoFi and TransMedics increasing revenue by 27% and 159%, respectively, in their most recent quarters -- while nearing GAAP (generally accepted accounting principles) profitability -- I'd argue that these young stocks are just getting started.
Here is what makes SoFi and TransMedics two of the top growth stocks to buy today and hold for the long term.
SoFi's magnificent (and profitable) transformation
Home to 6.9 million members -- a count that grew 47% since last year -- SoFi Technologies continues to transform itself into a one-stop shop for its high-value banking customers. Originally known primarily for its student loan refinancing operations, SoFi shifted gears and launched a bank in 2022, allowing the company to rapidly build a formidable financial services business alongside its lending unit.
Generating just $6 million in revenue in the first quarter of 2021, the financial services segment racked up more than $118 million in revenue in the most recent quarter. Offering best-in-class interest rates on checking and savings accounts, while also providing investment accounts and other banking products, SoFi's financial services unit has become integral to the company's long-term growth story.
In addition to increasing its revenue by 142% year over year, SoFi's banking unit added $2.9 billion in deposits during Q3 alone, bringing its total deposit base to nearly $16 billion. This rising deposit base highlights its strong growth trajectory but, more importantly, provides lower-cost funding for SoFi's lending segment.
As a group, these deposits have an average interest rate of 4.12%. In contrast, SoFi's warehouse facility (which it would otherwise use to fund its lending operations) has a rate of 6.31% -- creating 219 basis points worth of cost savings. Thanks to this lower cost of funding, SoFi's net interest margin (NIM) increased from 4.4% in the first quarter of 2021 to 6% today. Compared to traditional U.S. banks, with average NIMs of about 3% as of early 2023, SoFi's business is thriving in a higher interest rate environment.
Most importantly for investors, these deposits should be incredibly sticky. About 90% of the $16 billion from direct deposits, which typically are recurring.
So, riding this incredible growth from its financial services segment and with its stock up 60% in 2023, surely SoFi is too expensive to buy -- right?
In the words of the great sports caster Lee Corso, "Not so fast."
Thanks to its incredible growth rates, the company's price-to-sales (P/S) ratio of 3.5 is still well below its average as a public company.
Data source: YCharts
With management expecting to be GAAP profitable during the fourth quarter of 2023 and throughout 2024, SoFi remains a top growth stock to buy and hold as the virtuous cycle between its financial services and lending grows ever stronger.
TransMedics is building an unmatched network
Home to the only Food and Drug Administration-approved multi-organ transplant platform for lungs, hearts, and livers, TransMedics' Organ Care System (OCS) is reinventing the organ donation industry as we speak. Delivering nutrient-filled blood to the organs, TransMedics OCS keeps hearts beating, lungs breathing, and livers producing bile.
This proprietary system is a dramatic improvement over traditional cold storage, which often damages the donated organs. Furthermore, whereas cold storage keeps organs alive for eight to 12 hours, TransMedics' OCS extends this donation viability timeline to 20 or even 30 hours in some cases. Buying these extra hours is a wildly valuable proposition in the organ donation industry because 75% to 80% of transplants require some form of chartered transport, whether it is the organ, the donee, or surgeons.
By adding these precious few hours while keeping the organs perfectly safe and healthy, TransMedics delivers much higher utilization rates than cold storage. For example, cold storage's lung utilization rate in 2022 was just 18%, while TransMedics returned an incredible 87% rate.
Thanks to these results and the company's National OCS Program (NOP) that matches donors, donees, surgeons, and equipment, TransMedics has become the go-to choice for organ transplants. With sales rising 159% in its most recent quarter, the company blew away expectations as it began successfully integrating its Summit Aviation acquisition and its fleet of planes, prompting the stock to jump more than 50% in a day.
TransMedics is positioning itself to build a coast-to-coast logistical network that should further boost utilization rates as it streamlines the organ transport process. Most importantly for investors, despite this incredible growth, the company posted a 6% net profit margin in the third quarter after excluding one-time acquisition costs.
This early profitability, paired with the company's unmatched prowess in its industry, make it a brilliant growth stock to buy and hold today as management aims to expand from 2,000 transplants on its NOP in 2023 to 10,000 by 2028.
