The first six months of 2024 was a fantastic time for investors. The S&P 500 and the Nasdaq Composite put up total returns of 15% and 19%, respectively.
But not all stocks benefited from the broad rally. For example, SoFi Technologies (SOFI 1.40%) is down 24% this year (as of July 18). Is this fintech a smart buy right now on the dip?
SoFi is disrupting a massive industry
SoFi's historical growth is certainly impressive, and it's probably a key reason the stock might be on your radar. In 2023, the business reported 35% and 44% year-over-year revenue and customer growth, respectively. These figures are significantly higher than they were just a few years ago. SoFi has done a great job at expanding its offerings from student loan refinancing to personal and home loans, as well as banking and brokerage products.
The potential also remains sizable. According to Wall Street average analyst estimates, SoFi is projected to increase revenue at a compound annual rate of 17.4% between 2023 and 2026. While this would represent a slowdown from previous years, it's still an outlook that shareholders should get excited about.
The financial services industry in the U.S. is enormous. The four money-center banks -- namely, JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup -- combined have assets of $9.5 trillion. To be clear, these large institutions offer a much wider range of products and services than SoFi does, but you get the idea of how big the industry is.
SoFi's all-digital approach that emphasizes an excellent user experience will undoubtedly continue to draw in a younger demographic that can expand their banking relationship over time. And the company has no physical presence, which lowers overhead and customer acquisition costs. This positions SoFi well in a competitive industry.
NASDAQ: SOFI
Key Data Points
Show me the bottom line
During most of the past decade, it seemed like the market was infatuated with businesses that were growing rapidly, even though they weren't generating positive earnings. But in a period of higher interest rates, higher inflation, and economic uncertainty, I believe investors are starting to realize that owning businesses that are financially sound might be the right move.
Here's where SoFi is really starting to turn the corner. After years of losses, the company has now reported two straight quarters of net income. And the leadership team believes the bottom line is going to expand significantly in the years ahead. They think that by 2026, SoFi will report earnings per share (EPS) of $0.55 to $0.80. And in the years after, EPS will rise by 20% to 25% annually.
Of course, it's difficult to make accurate predictions this far in advance. But this is certainly a reason for investors to be optimistic. I mentioned before that SoFi still has meaningful revenue and customer growth prospects. Now it appears as though the company is also promising from an earnings perspective.
Why now is a good time to buy SoFi stock
During SoFi's first year of trading, the stock was extremely volatile. But since the end of 2021, it has trended down. As of this writing, it trades 70% below its all-time high, even though the stock has soared 69% since the start of 2023.
I believe the current valuation is compelling. The shares sport a price-to-sales ratio of 3.4, which is 17% below the historical average. For what it's worth, SoFi also trades at a discount to best-in-class JPMorgan. That might be warranted, given the larger bank is probably a safer business to own. However, SoFi does have greater potential for higher returns during the next few years.
Investors looking to gain some exposure to the banking sector should seriously consider this fintech stock.
