It hasn't been a pleasant ride for SoFi Technologies (SOFI 2.62%) investors. As of this writing, the shares trade about 74% below their all-time high.
But this fintech stock is up 48% since the start of 2023 (as of June 13), although it has certainly been a bumpy journey. Perhaps this momentum has caught the attention of investors.
With the shares now trading for less than $7, is SoFi stock worth buying? To find out, let's consider both the bear and bull cases.
The bear case
When analyzing financial services businesses, I am always reminded of just how intensely competitive the industry is. Basic products and services -- like checking and savings accounts, brokerages, credit cards, and various types of loans -- are essentially just commodities that are offered by huge money-center banks all the way down to tiny credit unions. It's hard to stand out and be different, and profit margins tend to be narrow.
SoFi has done a wonderful job highlighting its tech-enabled and digital-only platform. But at the end of the day, it's a bank. And once its growth starts to slow, the company could find it exceedingly difficult to continue expanding.
Critics can also point to SoFi's lending book. Personal loans account for 65% of its portfolio. In the past few years, personal loans have represented the vast majority of SoFi's lending activity, indicating a transition away from student loans, which are where the company's roots lie. In a recessionary scenario, there is heightened risk that borrowers will start to miss their payments in larger numbers, leading to sizable losses for the business.
NASDAQ: SOFI
Key Data Points
The bull case
It's important to understand the bear arguments for any company you are considering as an investment. It's also just as important to know the bull case.
One key aspect of SoFi's story since its founding in August 2011 has been its tremendous growth. Even in a higher interest rate and inflationary environment, this is still the case. Revenue soared 37% in 2024's first quarter, with the customer base expanding by 44%. Both of these figures are light-years ahead of what they were just three years ago.
As I alluded to earlier, it helps that SoFi operates no physical branches. This way, the business can focus solely on providing a superior user experience that draws in higher-income and digitally savvy consumers. And by introducing new products that it can cross-sell, SoFi has a clear path to further expansion.
Like most growth-oriented businesses, achieving profitability is usually an afterthought. Resources are plowed into marketing or product development in the hopes of getting to greater scale. While this was once true of SoFi, it is no longer the case.
That's because this company has now reported two straight quarters of positive net income. I believe that marks a major turning point. Some of its larger competitors in the banking industry are consistently profitable, showing what SoFi could become. However, there's more upside; Sofi has less overhead because it doesn't operate any brick-and-mortar branches.
And if the bull case so far hasn't been enough to persuade you, consider SoFi's valuation. The stock is trading way off its all-time high, which was set in February 2021. It can now be bought at a price-to-sales ratio of less than 3, which is significantly below the historical average of 4.2. This tells me that now is a good time to buy shares.
The hope is that the stock price will rise in years to come as SoFi continues building its revenue base while increasing earnings at an even faster clip.
