Shares of this successful digital banking pioneer remain well below their all-time highs.
The advent of the internet and smartphones has created huge opportunities for new companies to disrupt their industries. When it comes to financial services, Sofi Technologies (Sophie -0.14%) It is one of the most successful companies.
But this Fintech stocks Not the best investment: Despite rising 51% since the beginning of 2023, shares are currently 73% off their all-time highs in February 2021 (as of this writing). With shares now trading well below $10, could SoFi be the investment of a lifetime?
Play a different game
SoFi has evolved from a student loan refinancer to a more comprehensive digital banking provider, allowing customers to open checking and savings accounts, invest in stocks and cryptocurrencies, and even apply for a mortgage without leaving the platform.
Providing a better user experience is SoFi’s main goal. As an online-only bank, it naturally appeals to younger generations. They are a worthwhile customer group to target, as they have the potential to become lifelong customers who use SoFi to manage more of their finances over time.
It’s no surprise that growth has been impressive: The company posted a 37% increase in revenue in its most recent quarter (Q1 2024, ending March 31), driven by a 44% expansion in its customer base.
The company’s deposit growth has been truly phenomenal, and I think it’s one of the most important trends to watch because it shows how well banks are engaging with existing and new customers. As of March 31, SoFi had $21.6 billion in deposits, more than double the total from just 12 months ago.
This is a clear sign that customers trust the bank with their hard-earned money. This is in part because SoFi offers an impressive 4.6% yield on its savings accounts. Deposits are a low-cost, stable source of funding for any bank, which helps to build customer loyalty while also funding lending activities such as student loans, personal loans, and mortgages.
Prepare for big gains
As is common with companies focused on growing as quickly as possible, SoFi has been a consistently unprofitable company since its inception, which makes holding its shares arguably risky.
But financially, things are starting to look up: SoFi reported positive diluted earnings per share (EPS) of $0.02 in the fourth quarter of last year and posted the same amount in the most recent quarter.
Management believes this is just the beginning of significant earnings growth: They expect the company to generate EPS in the range of $0.55 to $0.80 in 2026, growing at 20% to 25% annually thereafter. This forecast should be good news for shareholders.
SoFi appears to finally be starting to benefit from operating leverage when it comes to key expenses like product development, sales, and marketing. As these largely fixed costs are overshadowed by the company’s impressive sales growth, the hope is that earnings will soar as management believes they will.
What do you think?
The stock is well off its all-time high, so it’s trading at a reasonable price-to-sales multiple of 3.1. Historically, the stock has traded at an average of 4.2, making the situation look attractive today.
It’s easy to be bullish on SoFi over the long term, especially given the reported revenue growth and positive earnings. Five years from now, in hindsight, I think the stock would have looked like an absolute bargain at under $10 per share.
Neil Patel and his clients have no investments in any of the stocks mentioned. The Motley Fool has no investments in any of the stocks mentioned. The Motley Fool has a disclosure policy.
