The financial services sector is one of the largest and oldest industries out there. But in the past decade or so, there has been tremendous innovation. That's because the internet and tech advancements have created new avenues for businesses to serve customers.
This is precisely what SoFi Technologies (SOFI +3.93%) is doing. Its name recognition seems to get more powerful with each passing year.
However, the fintech stock has largely been a disappointment for investors. The shares currently trade about 75% off their peak in February 2021. But is SoFi now a once-in-a-generation investment opportunity while it trades well below $10?
Growth
The big money-center banks like JPMorgan Chase and Bank of America have physical branches across the country, which have long been their primary method to attract retail customers. But amid the rise of smartphones and the internet, SoFi's business model is fully digital. The online-only bank leans on technology to cater to its user base.
Consequently, SoFi is automatically able to target a nationwide pool of potential customers because it isn't confined to a specific geography. Moreover, its main focus has always been to provide a superior user experience.
This strategy has resulted in fantastic growth. Revenue went from $78 million in the first quarter of 2020 to $645 million in the first quarter of 2024. The customer base has also expanded at a rapid clip, and now sits at 8.1 million.
The market loves a good growth story. But what stood out to me was how SoFi benefited after the regional banking crisis in early 2023. As of March 31, the business had $21.6 billion in deposits, which was up three-fold from $7.3 billion at the end of 2022. Customers clearly view SoFi as a trusted place to park their savings.
Investors should be encouraged by the company's long-term growth prospects. JPMorgan is the largest bank in the U.S., with $1.1 trillion in deposits in the consumer and community banking segment. That figure demonstrates how enormous this industry is. It won't be easy, but this means SoFi is staring at a big opportunity to keep expanding its customer and deposit base, particularly with younger consumers.
NASDAQ: SOFI
Key Data Points
Profits
It's understandable if you automatically assume that a fast-growing fintech enterprise is unprofitable. To be clear, this was the right way to describe SoFi throughout its history. Management adopted the correct strategy of focusing on expansion.
But things are starting to change for the better. SoFi posted diluted earnings per share (EPS) of $0.02 in each of the past two quarters. And the bullish perspective is to believe that this will be the norm from now on.
It appears as though the company is finally starting to leverage its fixed costs, whether that's sales and marketing or other corporate overhead. Executives believe SoFi will produce EPS of $0.68 (at the midpoint of their projections) in 2026. And in the years after, this metric is forecast to rise between 20% and 25% annually.
Valuation
Despite the Nasdaq Composite index trading near its all-time high, SoFi hasn't benefited from the bullish sentiment. Its shares have tumbled about 35% in 2024. There's an opportunity here for long-term investors. The current price-to-sales ratio of 2.8 represents a discount to the historical average multiple of 4.1.
The valuation looks more compelling when you look a few years out, while also considering the price-to-earnings ratio. SoFi's current price of about $6.50 is less than 10 times management's 2026 EPS outlook of $0.68. And if the bottom line continues its upward trajectory throughout the rest of this decade, investors are positioned well to achieve strong returns.
Of course, the intensely competitive nature of banking, coupled with the company's exposure to the economic cycle, present key risks. So, I wouldn't say SoFi is a once-in-a-generation investment opportunity. But while it sits below $10 per share, it looks like a smart buy.
