The advent of the internet and smartphones has created a sizable opportunity for newer businesses to try to disrupt their respective industries. When it comes to financial services, SoFi Technologies (SOFI 0.28%) is one such company that's finding success.
But this fintech stock hasn't been the best investment. Despite rising 51% since the start of 2023, shares are currently 73% below their February 2021 all-time high (as of this writing). Does this current setup, with the stock trading much lower than $10, make SoFi a once-in-a-generation investment opportunity?
Playing a different game
SoFi has evolved from just a refinancer of student loans to a more comprehensive digital banking provider. Customers can open checking and savings accounts, invest in stocks or cryptocurrencies, and even apply for a mortgage all without leaving the platform.
Providing a better user experience is SoFi's key objective. As an online-only bank, it naturally attracts a younger demographic. This is a valuable customer group to target, as they can be lifelong customers who use SoFi to handle more of their finances over time.
It's not a surprise that growth has been impressive. The business registered a 37% revenue increase in the latest quarter (the first quarter of 2024, ended March 31). This was helped by a customer base that expanded by 44%.
The company's deposit growth has been truly jaw-dropping. I believe this is one of the most important trends to keep tabs on that demonstrates how well a bank is resonating with existing and new customers. As of March 31, SoFi had $21.6 billion in deposits. This figure was more than double the total just 12 months before.
That's a clear sign that customers trust this bank with their hard-earned money. It helps that SoFi offers a fantastic 4.6% yield on its savings accounts. Deposits are a low-cost and sticky source of capital for any bank. This can drive customer loyalty, while at the same time fund lending activity, whether it's for student loans, personal loans, or home loans.
NASDAQ: SOFI
Key Data Points
Set up for huge returns
As is typically the case with companies focused on growing as quickly as possible, SoFi has usually been a money-losing enterprise throughout its history. That undoubtedly made it a riskier stock to own.
However, the business is starting to turn the corner from a financial perspective. SoFi reported positive diluted earnings per share (EPS) of $0.02 in the fourth quarter last year before producing the same amount in the most recent quarter.
Executives believe this is just the beginning of outsize bottom-line performance. They expect the company to generate EPS between $0.55 and $0.80 in 2026, followed by annualized growth of 20% to 25% growth. This forecast should be music to the ears of shareholders.
It appears as though SoFi is finally starting to benefit from operating leverage when it comes to its major expenses, like product development and sales and marketing. As these largely fixed costs get overshadowed by the company's impressive top-line growth, the hope is that profits will soar, as the leadership team thinks they will.
What about the valuation?
Because the stock is way off its peak price, it trades at a reasonable price-to-sales ratio of 3.1. Historically, shares have sold for an average multiple of 4.2, so the situation looks attractive today.
It's easy to be bullish on SoFi over the long term, particularly given the revenue gains and positive earnings that have been reported. I think five years from now, with the benefit of hindsight, the stock will have looked like an absolute bargain under $10 per share.
