SoFi Technologies (SOFI 4.39%) has taken its investors on a disappointing journey. Shares of this digital banking pioneer are currently 74% off their peak price, and they have tanked 32% just this year (as of June 4). That's hugely worrying when you see that the Nasdaq Composite Index is up 12% in 2024.
This beaten-down fintech stock might present a worthwhile buying opportunity, though, especially if you're a long-term investor. Can SoFi make you a millionaire one day?
SoFi's growth outlook
Innovation happens at a rapid pace in today's internet-driven economy, even in industries that have been around for a long time, such as financial services. By focusing on providing an exceptional user experience, one bolstered by digital-only offerings and no physical branches, SoFi has so far found success.
The business originally targeted college students with refinancing options to make loans more affordable. This helps it bring in younger customers who typically have higher credit quality. But today, SoFi offers a wide range of various financial products, like checking and savings accounts, credit cards, and brokerage accounts.
Growth has been superb, despite ongoing economic headwinds. In the first three months of 2024, revenue surged 37% year over year. And compared to three years ago in the first quarter of 2021, this top-line metric is 229% higher. The customer base continues to expand at a rapid pace as well.
Management's growth strategy involves bringing on new customers, which isn't surprising. But another key objective is to cross-sell more services to them, which can drive stickiness and boost long-term revenue potential.
SoFi's financial picture
Since SoFi's founding in 2011, the primary goal of the leadership team has been to expand the business. That's not surprising. Younger companies all follow this same playbook to try to achieve greater adoption.
Consequently, financial soundness hasn't been a concern until now. SoFi has now reported two straight quarters of profitability according to generally accepted accounting principles (GAAP). Last year, management even said that this was going to happen.
That's welcome news for shareholders. The company is proving that its business model is on a financially sustainable path. The hope is that earnings are not only consistent, but that they can increase over time.
SoFi posted diluted earnings per share (EPS) of $0.02 in the first quarter. But by 2026, management believes diluted EPS will come in between $0.55 and $0.80. As SoFi starts to better leverage its product development and marketing expenses with higher revenue, it's believable that this target can be met.
SoFi's valuation
I mentioned earlier how the stock has gotten absolutely crushed. Investors are still souring on the business. But this presents prospective investors with an opportunity.
The stock trades at a price-to-sales ratio of 3, a 29% discount to its historical average multiple of 4.2. That looks like a good entry point.
We can also look at the forward P/E to assess the valuation. Let's just assume that in 2026, SoFi does generate diluted EPS of $0.68, which is the midpoint of management's guidance. Based on the current share price of $6.80, the stock trades at just 10 times that forecast bottom-line metric. And given that management expects diluted EPS to rise at an annualized pace of 20% to 25% thereafter, I view the current setup as a worthwhile buying opportunity.
Investors who are able to put more capital to work have a better shot at becoming millionaires from buying SoFi stock. Having a very long time horizon helps, too, allowing compounding to work its magic.
