The broad market S&P 500 index is down 10% this year and off 14% from its peak, but it has climbed a bit from the low point it touched after President Donald Trump's broad tariff announcement tanked Wall Street a few weeks ago. The word out of the White House keeps changing, and the markets keep reacting.
It can be disconcerting for investors to see the value of their portfolios evaporate, but unless you need the funds you have invested immediately, market turbulence can sometimes be a blessing in disguise. This sell-off has created an opportunity to buy some amazing stocks on sale.
One such bargain is Sofi Technologies (SOFI +2.10%), which is down 29% year to date and 57% from its highs. It's underperforming the market, but not because of any business performance issues. Rather, shares of younger, riskier companies tend to take more of a blow when there's market turmoil and investors run to what they perceive as safer stocks. That gives you a fantastic opportunity to get a great deal on a growth stock you can buy now and hold forever.
The next big name in banking
SoFi's management team has high aspirations, and CEO Anthony Noto has claimed that it's only a matter of time before it becomes a top 10 financial institution. It's a classic fintech company, and its easy-to-use app is rapidly attracting new customers. While all banks today offer digital services, SoFi was first created to serve students and young professionals, and it was built to meet their demands.
The company has produced high growth across its key metrics. In the fourth quarter, it added 785,000 new members, bringing its total to 10.1 million, and it added more than 2.8 million in 2024. It also grew the total number of its products in use by more than 3.5 million for the year. Product growth is outpacing customer growth because its members are choosing to make use of more SoFi products as they engage with its platform -- its cross-selling strategy is working.
That's leading to higher revenue, economies of scale, and increasing profits. Adjusted net revenue increased 24% year over year in 2024's fourth quarter, and net income increased from $48 million to $332 million.
The online bank has diversified its platform to cover the whole gamut of financial services, with bank accounts, investing tools, and more. This has shielded it somewhat from the negative effects of higher interest rates, because even though default rates among its borrowers have risen and lending revenue has slowed, its overall sales continue to increase at a fast pace. Non-lending revenue increased 52% year over year in the fourth quarter and climbed to 49% of total adjusted net revenue, up from 40% the year before. Financial services products accounted for 89% of all product growth, and the shift toward these capital-light, fee-based services is keeping profits up despite the volatile economy.
Opportunity and risk
So how is SoFi planning to rise to the top of the banking industry? It has stayed in sync with its target market, meeting the demands of a population whose financial needs are going to grow over time. Currently, 90% of its deposits come from direct deposit members, and more than half of new deposit accounts are funded by direct deposit within 30 days of opening. Its upwardly mobile clientele should keep banking with SoFi as they increase their earnings and become more financially savvy, driving future growth.
As a bank that's all online, SoFi is unencumbered by costly real estate and legacy operations, and it can innovate more easily. Management feels that much of its success has been due to its investments in innovation and brand building, and as it keeps up its efforts in developing a seamless digital experience, it's harnessing a huge opportunity.
However, investors should keep in mind that there's risk in anything new. SoFi's performance thus far is a good indication that it's moving in the right direction, but potential is just that. It's also still largely a lender, so while it's making incredible progress in expanding its platform and offering a broader assortment of products, it's still very much susceptible to the impacts of interest rate movements.
The price is right
SoFi stock hasn't been much of a bargain recently, but knocked down a few notches, it looks priced to buy. It trades now at a forward 1-year P/E ratio of 24 and a price-to-sales ratio of under 5. Those are cheap valuations for a high-growth stock.
This isn't a stock for the risk-averse investor, but if you have some appetite for risk and a long time horizon, SoFi stock looks like a fabulous buy at the current price.
