In December 2021, Citigroup initiated coverage of the recent SPAC IPO and "social finance" company SoFi Technologies (SOFI -10.48%). Analyst Ashwin Shirvaikar predicted SoFi's "differentiated combination of consumer and enterprise services" and "member-centric approach" would "lead to rapid member growth and engagement."
He was right.
From 2021 through 2023, SoFi more than doubled its revenue from $977 million to $2.1 billion, according to S&P Global Market Intelligence -- and broke a seven-quarter-long losing streak, reporting its first-ever profit in Q4 of last year.
Shirvaikar has recommended buying SoFi stock pretty much ever since (excepting a period of dropped coverage earlier this year). On Monday, Shirvaikar resumed coverage with -- surprise! -- another buy rating. And he's as optimistic as ever about SoFi stock, predicting the shares will hit $11 within a year. That implies a 42% upside.
Is SoFi stock a buy?
Key to Shirvaikar's latest buy thesis is SoFi's decision to float $750 million in convertible debt paying 1.25% interest ... and use it to repurchase $600 million in stock paying 12.5% preferred dividends. As I've argued multiple times, this is kind of a genius move on SoFi's part. I estimate the switch from preferred to debt financing could save SoFi $65 million a year in dividend payments.
Shirvaikar's not quite that optimistic, predicting SoFi will save only $40 million to $60 million a year on the financial switcheroo. But even if he's right, that's still enough savings to grow SoFi's $48 million last-quarter profit by 25%. And it's only the start of the good news.
Looking out a few years, and counting the effect of the interest/dividend savings, most analysts agree SoFi will report its first full-year profit this year -- $0.08 per share -- and could triple that number ($0.24) next year, then double it again ($0.50 per share) in 2026. At $7.75 per share today, this implies a 2026 P/E ratio of just 15.4 on SoFi stock.
For a stock growing as fast as SoFi is, that seems a very fair price to pay.
