SoFi Technologies (SOFI 4.17%) stock has ping-ponged back and forth during its short time as a public company, but it made a major leap and is up 66% in the past 12 months. It's still 47% off of its all-time high and trading for less than $15. But is it ever going to get back there? Let's see if this is a huge opportunity or if investors should steer clear.
The ultimate fintech
Investors were enthusiastic about SoFi when it first came onto the scene because it's disrupting the huge, traditional banking industry. It's the prototypical fintech, offering standard financial products with updated technology on its all-digital banking app.
It has consistently delivered strong growth, and it has reported positive and increasing net income for the past five consecutive quarters. Customers are drawn to its user-friendly interface that makes managing your money less intimidating, and it's catching on with its target market of young professionals who are starting their financial journeys. That gives it significant long-term potential as this population ages and becomes more affluent.
NASDAQ: SOFI
Key Data Points
Membership growth and product adoption have been outstanding. SoFi ended 2024 with 10.1 million members, a 34% year-over-year increase, and 14.7 million products, 32% more year over year. Revenue increased 26% year over year, and SoFi delivered $0.15 in earnings per share (EPS).
Expanding the business
SoFi stock has been less consistent. It's been up and down, mostly on updates about its lending business. That's because lending is still its core business, accounting for 51% of adjusted net revenue in the fourth quarter and most of the profits. But the lending industry is highly vulnerable to whipsawing interest rates.
That's one reason management has waged a diversification campaign. Its other segments are financial services and tech platform, a white-label fintech infrastructure business. These expand its business and take some of the pressure off of lending. Financial services has been particularly strong, and together the non-lending segments have increased as a percentage of the business and have contributed higher revenue and profit.
| Segment | Revenue | Revenue growth | Contribution profit | Contribution profit growth |
|---|---|---|---|---|
| Lending | $418 m | 18% | $246 m | 9% |
| Financial services | $257 m | 84% | $115 m | 358% |
| Tech platform | $103 m | 6% | $32 m | 5% |
Data source: SoFi quarterly reports. All metrics are for the 2024 fourth quarter. Growth is year over year.
Offering more financial services does more than just hedge against interest rate volatility. It feeds into what Sofi calls its financial services productivity loop, which is its strategy to cross-sell new products. That generates higher engagement and revenue.
Risk vs. reward
Young stocks come with tremendous growth potential, but they also bring risk. SoFi is doing an excellent job of becoming a more stable company, and it's evolving into a more classically defined banking business. It doesn't have the maturity of the more reliable big bank stocks, but it also has higher growth potential.
It's important to consider valuation when assessing any stock, but valuation isn't in a vacuum; any glimpse in time needs to be considered in a broader context, like multiyear averages and industry standards.
SoFi stock trades at a forward one-year P/E ratio of 30, which is high for a bank stock but reasonable for a growth stock. Banks are typically valued using the price-to-book ratio, and SoFi's is high at 2.4, but not much higher than JPMorgan Chase's 2.2. I won't claim SoFi is a bargain, but it doesn't seem astronomically priced, either.
Looking down the road five or 10 years, I see SoFi continuing to grow and become a more reliable banking contender. It looks like a solid buy for the growth-oriented, long-term investor who has some appetite for risk.
