SoFi Technologies (SOFI 3.69%) has been a big winner over the past year, with the stock gaining 85% since the start of 2023. The fintech has skillfully transformed its business in recent years, which is paying off as it recently posted its first profitable quarter ever.
The company is improving its bottom line as it continues adding customers at a rapid rate. Despite this, the stock is still 67% below its peak price from early 2021. Is now a good time to add SoFi to your portfolio?
SoFi transformed into a full-blown financial services company
Founded in 2011, SoFi's early business focused on helping people refinance their student loans. When the pandemic hit in 2020, student loans still accounted for much of SoFi's business. At the start of the pandemic, the federal government placed a payment moratorium on student loans, forcing the company to reevaluate its business.
One way it diversified away from student loans was by expanding into personal loans. In 2020, SoFi originated $2.6 billion in personal loans, compared to $4.9 billion in student loans. By 2023, it was originating $13.8 billion in personal loans (an increase of 430%) compared to $2.6 billion in student loans.
In addition to shifting toward personal loans, SoFi expanded its capabilities by acquiring Golden Pacific Bancorp for $22 million in 2022. Acquiring the bank allowed SoFi to assume its banking license and SoFi went from a lending company to a one-stop shop for financial needs. The fintech could now provide banking products like checking and savings accounts, credit and debit cards, investment accounts, and technology solutions.
Image source: Getty Images.
In addition, holding a bank charter allows SoFi to collect deposits, which provides it with a solid funding base. It can also hold the loans on its books, allowing it to capitalize on higher net interest income amid the higher-interest-rate environment. Last year, the company took in $1.3 billion in net interest income, up 116% from 2022.
SoFi may finally be turning a corner
What makes SoFi stand out is its impressive growth. At the end of last year, it had over 7.5 million customers (which it calls members), representing a 44% increase year over year. What's most impressive is its consistency in adding members. Over the past 15 quarters, it has grown its member count by 10% or more in every quarter but one.
Image source: SoFi Technologies annual report.
Although SoFi is growing rapidly, that growth has come at the cost of significantly higher expenses. Despite increasing its revenue by 303% since 2019, it has yet to turn a full-year profit. In 2023, the company's net loss was $301 million.
However, it looks like the company may be turning the corner. SoFi reported a net profit of $48 million in the fourth quarter, its first profitable quarter ever. SoFi management also told investors that the fintech expects to produce a GAAP net income of $95 million to $105 million in 2024.
Buy, hold, or sell SoFi stock?
SoFi just produced its first profitable quarter. If it can continue to string together profitable quarters, now may be an excellent time for investors to get in while the stock is still reasonably priced. Today, the company's stock is priced at 3.7x sales, which is below its average price-to-sales ratio (P/S) of 4.3 since going public in 2020.
SOFI P/S Ratio data by YCharts.
Compared to other bank stocks, SoFi stock is expensive. However, the fintech has done an excellent job of growing amid rising interest rates, enticing customers with high-interest-rate savings accounts. It's also achieving growth well above traditional banks, so its higher valuation is warranted.
While this higher valuation could expose the stock to more volatility in the short term, I think SoFi's ongoing growth makes it an excellent buy for patient investors today.
