It has been a volatile ride, but investors will be encouraged to know that SoFi Technologies (SOFI -10.42%) has benefited from the market's broad rally. Shares of this banking innovator are up 64% since the start of 2023.
However, this fintech stock is still 71% below its peak price. And its current market cap of $8 billion keeps it in mid-cap territory.
I believe SoFi certainly makes for a solid long-term investment opportunity. But can the stock make you a millionaire?
SoFi is taking on a massive industry
One of the reasons I think SoFi should be on everyone's radar is because of how it has found remarkable success in disrupting the massive financial services sector. The business was founded in 2011, during a time when consumers might have been skeptical of the banking industry following the Great Recession. Moreover, smartphones were in the early stages of their adoption phase, making mobile banking a novel activity.
Riding this powerful trend over the past decade has boosted SoFi to attract a user base of 7.5 million customers today. But that's a drop in the bucket compared to what really could be viewed as the company's total addressable market opportunity.
For what it's worth, JPMorgan Chase, the leading bank in the U.S. by assets, says it serves 80 million consumers. This means SoFi has huge potential for growth, which definitely works in its favor when thinking about its ability to make its shareholders millionaires in the future.
The business has found success by leaning into a tech- and digital-first approach, focusing intensely on providing a better user experience. Getting its customers to use more products over time is a key strategic pillar.
In the fourth quarter of 2023, the average customer used 1.5 products, a figure that has moved higher historically. While someone might initially be drawn to SoFi thanks to its above-market savings rate of 4.6%, they could then be incentivized to open up a brokerage account or take out a mortgage. This can lead to greater revenue in the long run.
Throughout its history, SoFi was a money-losing enterprise. This changed last quarter when the company reported positive quarterly generally accepted accounting principles (GAAP) net income. Management is confident that the bottom line will expand at a rapid clip in the years ahead, indicating SoFi's scale and operating leverage. Combine top-line gains with earnings expansion, and investors have a lot to be excited about.
SoFi's path to a seven-figure position
Even after the stock's climb in the last 15 months, it's not expensive. In fact, it might be an attractive valuation. Shares trade at a price-to-sales ratio of 3.4. substantially below their historical average.
In my opinion, SoFi looks like a smart stock to buy right now. It focuses on its users and their needs, plus it is set to grow revenue and net income at high rates going forward.
I believe people who are able to invest a larger initial capital outlay while also having a very long-term time horizon could indeed become millionaires off of this company. However, it's important to understand important risk factors.
One pressing risk to keep in mind is SoFi's loan book, which is mostly made up of personal loans. How these perform in a possible recessionary scenario should be closely watched. The hope is that default rates are kept in check.
Earlier I applauded SoFi's ability to successfully innovate in an outdated industry. That deserves credit. But the threat of competitive forces should remain on top of shareholders' minds. At their core, financial services are basically just commoditized offerings. It's not uncommon for people to use multiple banking institutions for their various needs. SoFi must continue finding ways at bringing on more users.
As we look at the situation today, I remain bullish on this business over the long term. Investors might just reach the seven-figure milestone on this holding.
