If you looked at the stock chart of SoFi Technologies (SOFI +2.24%), you wouldn't know if you were looking at the price movement of a real business or a drawing of a roller coaster ride. The company has taken shareholders on a wild journey in the past few years.
SoFi currently trades 50% off its peak price, but it has experienced monster momentum in recent times, soaring 70% since the start of October (as of Nov. 8).
But can this surging fintech stock be a millionaire-maker?
Posting stellar growth
The financial services industry, which is one of the oldest around, isn't known for being particularly friendly to its customer base. It has a reputation for charging unnecessary fees, creating friction in moving money around, and not being very technologically advanced. By understanding this situation, while also leveraging the advent of smartphones and the internet, SoFi has thus far built an extremely successful digital banking enterprise.
The business provides a wide range of financial services and lending products, without the presence of a physical branch network. This lack of overhead allows SoFi to move more rapidly to better serve customers.
The overall industry doesn't experience significant growth, as it's a mature market. But as a younger disruptor, SoFi has bucked this trend by posting fantastic gains. In 2023, sales were up 35%, before rising 29% through the first nine months of 2024. As of Sept. 30, the company had 9.4 million customers, up 524% compared to just four years ago.
"Meeting all of a person's financial needs in one place with world-class products delivered seamlessly and digitally gives us a massive advantage," CEO Anthony Noto said on the third-quarter 2024 earnings call. "This is why you will often hear me say it's a matter of when, not if we become a top 10 financial institution."
NASDAQ: SOFI
Key Data Points
Getting to profitability
One of the criticisms of SoFi, and any fast-growing enterprise generally, is that it hasn't been consistently profitable historically. Spending aggressively to develop products and attract new customers is usually the top priority for these kinds of businesses, and SoFi was no different.
But the tide is turning. The company has now reported four straight quarters of positive earnings per share (EPS). In the latest three-month period, SoFi generated diluted EPS of $0.05, which was a huge reversal from the $0.29 loss from Q3 2023.
The good times will continue rolling, according to the leadership team. SoFi is expected to post EPS of $0.11 to $0.12 for the full year. That figure is forecast to soar to $0.68 (at the midpoint) in 2026, before growing between 20% and 25% per year on average after that. As a fully digital bank, SoFi operates a scalable business model.
Because earnings are rapidly trending higher, it makes the current forward price-to-earnings (P/E) ratio of 105 look much more reasonable. Investors have to believe SoFi's bottom line can keep expanding before buying shares.
Getting to millionaire status
It's very difficult to predict whether or not a stock can become a millionaire-maker. But as I've touched on above, SoFi definitely has the characteristics to do just that.
One key risk factor that I believe investors can't ignore, however, is just how competitive the industry is. I mentioned earlier how SoFi has carved out a successful niche in the gigantic financial services market. However, the larger banks haven't been resting on their laurels, as they've invested heavily in their own digital capabilities to better serve customers. This simply means that SoFi must continue to be on its A game.
Still, SoFi certainly has the potential to generate outsized investment returns, provided it continues on its trajectory of rapid revenue, member, and EPS growth. If you're able to put up more capital upfront, while also having a longer time horizon, then the chances the stock could make you a millionaire are higher.
