Digital banking and financial services company SoFi Technologies (SOFI 0.70%) is back within shouting distance of its 52-week low and roughly 75% off its 2021 peak. Investors often let price drive a stock's narrative. For example, SoFi's share price keeps falling, so the business must also be bad.
But is that true, or does the market have it all wrong?
Situations like this are risky, but going against Wall Street and getting it right can generate potentially life-changing investment returns.
Here are the signs that SoFi could be a millionaire-making stock hiding in plain sight.
People love SoFi's products and services
You can debate the stock all day, but it's clear that customers love using SoFi's products and services. SoFi is primarily a digital bank, which means it operates online and doesn't have physical branches. Customers bank through the website or SoFi's smartphone app. Users can deposit, spend, and save money, invest in stocks or cryptocurrencies, open a credit card, apply for various loans, monitor their credit, and learn about financial topics, all within SoFi. It makes banking with SoFi convenient and is a great cross-selling model that generates more business from customers as they use the app more.
Do people like using SoFi's app? It appears so. The app has an average of 4.8 stars out of five on Apple's App Store, based on more than 340,000 reviews. Additionally, look at how quickly SoFi's customer base is growing.
Image source: SoFi Technologies.
Look at that consistently high user growth -- this isn't population-driven. It should be clear that people are leaving other banks to use SoFi.
Why growth can last for years to come
As long as SoFi continues offering a great product and effectively communicating it to the market, there's no reason SoFi can't continue growing.
SOFI Revenue (TTM) data by YCharts.
More specifically, SoFi could generate multiyear growth with three distinct catalysts.
Customer expansion
SoFi won't increase its customer base by 40% annually forever, but double-digit growth could persist for a while. There are about 260 million people aged 18 or over in America. Additionally, there are more than 33 million small businesses in the U.S.
To be conservative, I'll assume that large businesses bank with more established entities like Bank of America. Still, that's a domestic pool of nearly 300 million potential customers. That doesn't factor in international expansion, which SoFi doesn't need to rush to, but it could be an opportunity down the road. Today's 8.7 million customer accounts translate to just a 2.9% share of this market.
Customer engagement
Don't underestimate SoFi's cross-selling opportunities. The company's revenue could grow dramatically by steadily getting more users to do more on SoFi. SoFi's total product count in Q2 was 12.8 million. Given its 8.7 million customers, the average person uses fewer than two products. Again, SoFi offers a cornucopia of financial products and services, which could easily grow over time. People who bank may want to open a credit card or invest. They might refinance their student loans through SoFi or borrow to buy a car. The possibilities are pretty wide-ranging here.
Deposit growth
SoFi has a reputation for attracting younger people to its app, which could eventually become a tailwind itself. Given SoFi's roughly $23 billion in total deposits as of Q2, the average customer has $2,621 with SoFi. There is growth potential as generational wealth shifts from boomers and Gen X to millennials and Gen Z, and that money trickles into SoFi as investments, savings, and more.
Is SoFi a millionaire-maker?
NASDAQ: SOFI
Key Data Points
Growth is only part of the equation for finding millionaire-making stocks. You also need a great starting point.
Investors, especially those holding SoFi at a loss, could feel down about the stock's performance. I've previously discussed how SoFi was arguably an expensive stock when it went public and peaked a few years ago.
But all that has changed now.
SOFI Price to Tangible Book Value data by YCharts.
Today, SoFi's price-to-book ratio is in the mix with America's mega-banks. They are more established than SoFi but lack the growth potential. The valuation is now sensible enough that investors could realize much of SoFi's future growth as investment returns. Management expects book value to increase by $800 million to $1 billion this year, a roughly 20% to 30% jump over last year.
SoFi, with a market cap of just $7 billion, is small enough that years of consistent high-speed growth could make long-term investors very rich if they're patient enough.
