Is SoFi Stock a Millionaire Maker?

Investors got excited about SoFi Technologies (SOFI -10.48%) stock when it went public at the end of 2020, but it plummeted in the bear market that followed. Now there's been a repeat of that pattern. SoFi stock gained 116% in 2023, but it's down 25% so far this year.

Is this the natural ebb and flow of a stock? Let's see where SoFi is going and whether it could be part of a millionaire-maker stock portfolio.

Making all the right moves

SoFi has expanded from its roots as a student loan cooperative and now offers bank accounts, investing tools, and more. Everything is available on its easy-to-use digital app, and it's attracting millions of new customers. As SoFi draws in new customers, it upsells and cross-sells new products. It calls this its financial services productivity loop, and it does more than generate higher engagement and revenue -- it also leads to efficiencies at scale and profits.

In the 2023 fourth quarter, revenue increased 35% year over year to $615 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was up 159% to $181 million with a 30% margin, hitting management's target, and net income was $48 million, or $0.02 in earnings per share (EPS). It was SoFi's first quarterly profit.

The credit portfolio and lending segments are looking good. Total deposits increased by $2.9 billion for a total of $18.6 billion, or 19% year over year. Lending segment revenue increased 8% year over year in the fourth quarter and 20% for the full year. Net interest income increased 43% for the quarter and 81% for the year, and lending products increased for all of its segments -- personal, home, and student loans -- despite the challenging credit environment.

The most telling metrics are the customer additions. There were 585,000 new accounts in the fourth quarter, a 44% year-over-year increase, and 695,000 new products. These customers are what will drive future growth.

Even though banks in general have been feeling the impact of higher interest rates in higher defaults and lower loan applications, SoFi is well positioned to use this impact toward its long-term benefit. Customers are looking for higher interest rates on deposits, and SoFi offers high rates and an all-digital experience that's becoming more popular. Adding new customers now could lead to even stronger results down the line.

What's up with its stock?

After its promising financial performance, you would think the stock would jump. It did for a second after the earnings report, but it quickly dropped. And it's not a valuation issue, which is often the culprit. SoFi stock trades at a price-to-sales ratio of 3, which is cheap for a growth stock.

Now that it's becoming profitable, you can also evaluate its price-to-earnings ratio. Based on projected EPS, it's trading at a forward one-year price-to-earnings ratio of 42. That's not quite as cheap, but it could be justified for a high-growth stock.

Investors might be tempering their expectations now that SoFi is on track to become consistently profitable, and it's not clear if it's closer to a fintech-based growth stock or more like a bank stock, most of which come with lower valuations.

Investors shouldn't be too worried about declining stock moves, even large ones. Every stock experiences setbacks on its way up. There's no such thing as completely linear stock growth. If your investment thesis is intact, try to ignore any noise and don't let pessimists derail your thinking.

Should you buy SoFi stock right now?

Even after more than doubling last year, SoFi stock didn't get anywhere close to its all-time high, and is now about 70% off those highs. Can it ever reach them again and supersize your investment?

Of course, whatever you come out with is tied to how much you initially put in. If you're investing a six-figure sum in an individual stock, it could help you become a millionaire more quickly than a smaller sum.

Most investors will put smaller amounts into several stocks for a diversified portfolio, and if you pick the right stocks, they can help you achieve millionaire status over many years. SoFi is still in its infancy, but it's investing wisely in its business and already focusing on profitability at scale. It could be a real challenger to the big banks in years to come, as more customers look for digital options. There's plenty of growth happening at SoFi, and investors can view its reduced stock price as an opportunity to buy on the dip. SoFi stock could be a valuable addition to a portfolio that can lead to millionaire status.