SoFi Technologies (SOFI -2.50%) stock has been an incredible growth story, attracting new members at a high rate and achieving profitability in a relatively short amount of time.
If you didn't buy shares and tap into its 442% gains over the past three years, don't despair: Now is a great time to buy. Here's one reason why.
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More loans and more business
Banks as a class are very sensitive to interest rate fluctuations. When rates are high, they do earn more on net interest income from deposits. But in general, the market tends to sour on bank stocks when rates go up because they suck momentum out of the economy, which weighs on banks, and they also lead to higher default rates.
SoFi managed to perform phenomenally despite the high interest rates over the past few years. Although lending is its core segment (accounting for more than half of total revenue until recently), it has successfully expanded its platform with a wide range of products and services, and obtained a banking charter through a bank acquisition. Its credit metrics haven't been phenomenal, but they didn't overshadow the other positive things happening at the bank.
As interest rates have started to come down, better things are happening in SoFi's lending segment. Revenue growth is accelerating, and default rates are improving.
In the second quarter, total adjusted net revenue increased 44% over last year, and lending revenue was up 30%. The annualized personal loan charge-off rate declined from 3.31% in the first quarter to 2.83%, and the personal loan 90-day delinquency rate declined for the fifth straight quarter to 0.42%.
With the Fed's latest cut, and the likelihood of two more cuts coming up over the next few months, expect SoFi to keep growing at robust rates and for SoFi stock to reflect that.
