SoFi Technologies (SOFI 0.62%) just reported financial results for the first quarter of 2024. And based on the fact that shares immediately fell 10% following the news, the market wasn't too pleased with the report.
That drop marks a difficult journey for this popular fintech stock. As of May 3, it sits 73% below its peak price, which was hit in February 2021.
But there are reasons to be optimistic about this company and its long-term outlook. Can SoFi be a millionaire-maker stock?
Macro headwinds
During Q1, SoFi's revenue rose 37% year over year to $645 million, with its customer base increasing by 44% to total 8.1 million. Even more encouraging, the business posted its second straight generally accepted accounting principles (GAAP) positive net income, this time coming in at $88 million. These results were actually quite good.
However, there were some data points that point to a business that isn't immune to the current macroeconomic environment, one with higher interest rates and inflationary pressures. Revenue from lending activities -- such as student, personal, and home loans -- dipped 2%. This makes sense, as higher borrower costs discourage people from wanting to take out loans.
Management provided guidance for second-quarter revenue to come in at $560 million (at the midpoint). This came up short of Wall Street estimates of $581 million. Because the market is forward-looking, this likely helped propel the stock sell-off.
NASDAQ: SOFI
Key Data Points
Focus on the positive factors
While it's easy to get caught up in a single quarter's numbers, it's always important to maintain a focus on the bigger picture. With this mental framework, we'll quickly realize that SoFi has some favorable attributes.
For starters, the company's digital-only offerings, coupled with its emphasis on providing a superior user experience, are winning over customers, particularly younger and wealthier ones. In the crowded and hyper-competitive banking sector, this is commendable and helps to differentiate SoFi.
One area the business is finding tremendous success in is in attracting deposits, which I believe is perhaps the best indicator of how well a banking institution is doing. In the past 12 months, SoFi's deposits have soared from $10.1 billion to $21.6 billion (as of March 31). Expanding FDIC insurance to up to $2 million, while offering a convincing 4.6% annual percentage yield (APY) on savings accounts, is working wonders bringing in fresh capital.
I mentioned how SoFi has now reported two straight quarters of positive net income. For a company that remains in growth mode, I think hitting this financial milestone is a fantastic development. It demonstrates that SoFi is now better able to leverage its expenses. The leadership team believes that profits are set to skyrocket in the years ahead, with projected earnings per share (EPS) of between $0.08 and $0.09 in 2024 and between $0.55 and $0.80 in 2026.
Beaten-down valuation
If investors are able to look past the near-term challenges, which actually aren't that troubling when you consider the growth and profits SoFi is registering, then it's time to consider adding the stock to your portfolio. The current setup couldn't be more favorable.
Because the shares have gotten so crushed, they trade at a very attractive valuation. Investors can buy the stock at a price-to-sales ratio of 3, which is well below the historical average of a 4.2 multiple. That creates additional upside for prospective investors.
Should the business continue bringing on new customers, expanding its deposit base, growing revenue, and boosting its profits, then there is a chance that the stock can be a millionaire maker over the long term. For those who are able to invest a larger sum of capital up front and extend their time horizon, the chances of generating a million-dollar balance are higher.
