SoFi Technologies (SOFI 2.62%) started trading in late 2020, which was an opportune time for it to enter the public markets. Shares quickly soared 146% to their peak in February 2021.
Since then, this fintech stock has tanked 70%. But it's best to focus on the company's underlying fundamentals, since there could be a lucrative buying opportunity here.
Could SoFi make you a millionaire one day? Let's dig deeper.
The business model and its competitive strengths
SoFi offers a range of financial services, including checking and savings accounts, brokerage services, insurance products, credit cards, and loans. But unlike the big banks and their sprawling network of branches, it operates with a fully digital business model.
And that has worked extremely well, particularly as the internet and smartphones increase in penetration. SoFi has benefited from this tech wave.
Part of the company's strategy centers on providing its user base of nearly 8.8 million customers with a superior experience. The mobile app is easy to use, and it makes managing your finances seamless.
Another target for the business is a younger and more affluent demographic. The average SoFi student loan borrower has a Fair Isaac FICO credit score of 764 (out of 850) and an annual income of $137,000. This is a very attractive user base to have for a bank.
NASDAQ: SOFI
Key Data Points
Growing in a profitable manner
In 2022 and 2023, SoFi posted 60% and 35% year-over-year revenue growth, respectively. Through the first six months of this year, that figure slowed to 28%. The slowdown can be discouraging, but it's still a healthy clip that points to meaningful growth potential.
One area the business has excelled in is attracting deposits. It currently has $23 billion in customer deposits, more than triple the $7 billion at the end of 2022. This is a clear indicator of the bank's earnings potential because deposits provide a low-cost and reliable source of funding that can fuel loan growth. It also shows the trust that people have in the fintech, which can be a key differentiator.
SoFi has now reported positive earnings per share (EPS) for three straight quarters. And management believes that this will be the new normal, with the bottom line soaring in the years ahead.
The company's managers think EPS will go from between $0.09 and $0.10 this year to $0.68 at the midpoint of their estimates in 2026. That would be a tremendous gain that can come about by better managing operational expenses.
Risks and valuation
No business is immune from risk factors, and SoFi is no different.
One notable downside scenario is the surge in personal lending in recent years. As of June 30, 62% of SoFi's $25 billion loan book is represented by higher-risk personal loans. This is a vulnerable position should the economy deteriorate. Borrowers could miss payments, leading to losses for the bank, perhaps why the shares have languished during the past year or so.
Competition is also something investors should keep in mind. The huge money-center banks have been investing in their own digital capabilities to better serve customers. And this could diminish the tech-forward position that SoFi has established.
Even when considering the risks, though, I believe the stock is a compelling addition to a portfolio. I already discussed SoFi's competitive position, as well as its profitable growth trajectory. And the shares are trading way below their all-time high, at a historically cheap price-to-sales ratio of 3.4.
Bullish investors who can put a sizable chunk of money to work in the stock -- and adopt a very long-term time horizon -- have the best chance to become millionaires from owning SoFi.
