The idea of buying a stock after a 150% run-up in just six months is more than a little intimidating. Making the matter even more uncomfortable is when that big move pushes the stock price well above analysts' average target. It just feels like there's a bit too much risk of an immediate pullback.
And in most cases, maybe there is.
If the stock you're talking about is SoFi Technologies (SOFI 4.00%), however, maybe you take that risk anyway, happily diving in while the rally's taking a breather after pushing the stock to a record high just a month earlier.
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Plugged into the new societal norm
On the off-chance you're reading this and aren't at least a little familiar with it, SoFi Technologies is an online bank offering everything from checking to lending to credit cards to investing, and more. It's unique in respect to most of the companies in the industry though, in that it was built from the ground up to only be an online bank no brick-and-mortar branches.
But it works. As of the end of June, the company was serving more than 11.7 million customers, which has increased every single quarter going all the way back to early 2020, when it had only a little more than 1 million customers.
This is just a sign of the changing times. A survey commissioned by the American Bankers Journal and performed by Morning Consult indicates that smartphone apps were the preferred means of handling banking business for 55% of the poll's respondents, followed distantly by laptop/PCs at only 22%. In-branch visits, ATMs, and phone calls barely registered at 8%, 5%, and 4%, respectively.
It also comes as no real surprise that the younger the customer, the more likely they are to bank online. Roughly two-thirds of millennials and Gen Zers regularly opted for a banking app, while 41% of baby boomers preferred a conventional computer over a mobile app to manage their bank accounts. Perhaps a little surprisingly, only 13% of these boomers now say in-person visits to a bank branch are their go-to choice for customer service.
SoFi is simply plugged into this sociocultural shift, having now amassed $41.1 billion in assets for its efforts since officially becoming a bank back in early 2022.
But these metrics alone don't inherently make the stock a buy right now. There's something else that does this, despite the stock's possible overvaluation.
And the tailwind is going to be as long-lived as it is massive
Don't misunderstand. There's arguably more near-term risk here than most investors would normally care to take on. Analysts' average one-year target of $22.75 is 22% below the stock's recent price of $29.33, and there's no denying the mid-year buying has stalled since late September. Investors are obviously at least a little bit hesitant, and for understandable reasons.
NASDAQ: SOFI
Key Data Points
But this may be one of those cases where the potential upside of a stock is compelling enough to take the risk at its current price, and simply deal with any volatility that's sure to be a little unnerving at times. Just be sure you're ready to stick with this stock long enough to ride out these swings en route to even-bigger gains.
The key to the opportunity here is the shift away from traditional banking and toward online self-service banking. As much of it as we've seen already, most of this shift has yet to take shape.
Think about it. Although it seems like the internet and even smartphones have been around forever, that's not actually the case. Only people under the age of 40 have never lived life as an adult without relatively easy access to the internet, while only people under the age of 20 have never known a world without smartphones. People over these ages aren't necessarily anti-technology, to be clear, but they're certainly not digital natives like younger consumers.
As all these consumers age, self-service technology will become even more prominent, particularly as today's young consumers pass these norms along to their children. That's why market research outfit Technavio believes the global digital banking market is poised to grow at an average annualize pace of more than 16% through 2029, led by the U.S. market SoFi serves.
In this vein, analysts expect SoFi's annual top-line growth to exceed the rest of the industry's through next year, although odds are good it will outpace this marketwide outlook for well beyond the forecast period.
Just buckle up
So yes, SoFi Technologies stock is a buy while it's less than $30. The recent lull isn't as much of a red flag as it is a chance for the bulls to regroup and reset.
Just brace for some short-term volatility while you're patiently holding onto your long-term position in SoFi. It's that kind of investment.
