Investors are getting excited about SoFi Technologies (SOFI +3.70%) stock again. The fintech superstar lost market confidence earlier this year as its lending business came under pressure from interest rates, but it has continued to gain traction as a real alternative to the big, traditional banks.
Chief Executive Officer Anthony Noto is confident that SoFi will become one of the 10 biggest banks in the country. "It's a matter of when, not if," he said in the company's third-quarter earnings remarks.
SoFi has been reporting outstanding progress, and trends are starting to work in its favor. Here are three reasons SoFi stock could double by 2026.
1. It's a growth machine
One thing SoFi hasn't had any problems with since going public in 2021 is growing. Its revenue has increased by at least 20% for 17 consecutive quarters and under all kinds of circumstances, including a pandemic, inflation, and interest rate fluctuations. It accelerated to 30% in the 2024 third quarter, as the economy looks like it's beginning to stabilize.
The growth is coming from multiple places. SoFi continues to attract new members at high rates, and these customers are increasing engagement and adding more products. New members increased 35% in the third quarter, and products increased 31%.
But it's more than that. Existing customers were responsible for 32% of the new products, and 20% of new members opted for a second product within 30 days of becoming a customer.
NASDAQ: SOFI
Key Data Points
This is likely to continue. Management pointed out research from Mintel that shows that 20% of Americans are looking for a new savings account, and an equal percentage of people are looking for a new credit card.
Then there are all the other financial services people are looking for that SoFi offers, such as checking accounts and investing solutions. Each time someone signs up and is happy, it's an opportunity to establish its brand and benefit from recommendations. It's a strong flywheel effect with huge long-term implications, so don't be surprised if SoFi gets into the top 10 in the coming years.
2. It's achieving profits at scale
Management has worked to transform SoFi from a student loan specialist into a full financial services app focusing on capital-light, fee-based products. Fee-based revenue increased 65% year over year in the third quarter and accounted for a quarter of total adjusted revenue, and that's resulting in rising profitability. The all-digital setup, without expensive real estate and human interaction, also lends itself to profitability at scale. All three of SoFi's segments -- lending, financial services, and tech platform -- were profitable in the third quarter.
The lending segment has been under pressure this year due to high interest rates, but it's already getting better, and management revised its outlook, saying the lending business will match 2023's results rather than coming in below. The nonlending segments keep growing as a percentage of the total business, reaching 49% in the third quarter, up from 39% last year.
Earnings per share (EPS) of $0.05 beat expectations of $0.04 in the third quarter, and management raised its forecast across the board, increasing its EPS estimate from about $0.09 to $0.10 to about $0.11 to $0.12 and revenue growth from 18% to 22%.
3. It can handle a higher valuation
The situation looks positive for SoFi right now, but could its stock really double?
Right now, SoFi stock trades at a forward, one-year price-to-earnings (P/E) ratio of 52. I wouldn't call that cheap, but it's reasonable for a company reporting this kind of performance. Keeping that constant, SoFi's stock doubling would mean earnings doubling by the end of 2026, too.
The average Wall Street analyst expects $0.12 in EPS this year, and then for that to more than double to $0.28 next year. If it keeps up that kind of earnings growth, it the stock price could easily double its price without becoming relatively more expensive.
There are so many factors that could affect how SoFi moves, but if the loan segment strengthens with lower interest rates while it cranks out more high growth, it should sustain positive market sentiment.
