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SoFi Technologies (SOFI) Gains 9% in 3 Months: Is It Worth Buying?

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SoFi Technologies’ (SOFI - Free Report) stock has rallied 8.7% in the past three months, outperforming the  6.9% rally of the industry it belongs to and 6.2% growth of the Zacks S&P 500 composite.

YTD Price Performance

 

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SOFI’s shares have outperformed its competitors Wells Fargo’s (WFC - Free Report) 5.1% dip and Bank of America’s (BAC - Free Report) marginal increase over the same period.

Given the continuous strength of SOFI shares, many investors may be attracted to buy the stock. However, the relevant query remains: Is it a wise decision to invest in SOFI now?

To better answer this question, let us delve into a detailed analysis of the factors driving SoFi Technologies' success.

Membership & Product Growth Look Impressive

SOFI witnessed a significant 41% year-over-year rise in new members in the second quarter of 2024, wherein it added 643,000 members. Currently, it flaunts 8.8 million members and expects to add at least 2.3 million members by the end of 2024, indicating 30% year-over-year growth.

SoFi Technologies grew products in the second quarter of 2024 by 946,000 to 12.8 million. It suggests a 43% increase from the year-ago quarter, adjusting for its exit from crypto last year. Approximately 40% of the new products in the second quarter were opened by existing SOFI members. The company has also observed nearly 30% of the new members opened a second product in the first 30 days, implying the immediate value of a one-stop-shop strategy.

The rise in members and products is a result of SOFI’s persistent focus on innovation in products across eight categories, which will drive the company’s financial growth for the upcoming years.

EBITDA Growth Streak Strengthens

In the second quarter of 2024, SOFI’s adjusted EBITDA was $137.9 million, indicating 80% year-over-year growth. Such impressive growth is primarily from its financial services segment due to momentum in product growth. It has been profitable since the fourth quarter of 2023. Backed by this momentum, the company has raised its adjusted EBITDA outlook to $605-$615 million from $590-$600 million provided previously. It must be noted that this was the second consecutive rise in guidance in 2024.

Strong Leadership Across Lending

SoFi Technologies reported strong results despite its conservative stance, given 500-basis-point growth in benchmark rates over the past two years and continued macro uncertainty. Net interest income soared to an all-time high of $279 million or 82% of lending revenues compared with 72% in the year-ago quarter and 45% two years ago. A record of $4.2 billion in personal loan origination was witnessed by SoFi Technologies while adhering to stringent underwriting standards as the team demonstrated its grip by persistently iterating pricing and marketing in the quarter.

SOFI had the highest originations of home loans since the first quarter of 2022, increasing 24% quarter over quarter and 71% on a year-over-year basis despite interest rates at the highest level. Purchase home loan volume was the highest ever, climbing 25% from the first quarter of 2024 and nearly 100% year over year. There was 86% growth in student loan originations in second-quarter 2024. The outstanding results reported by SoFi Technologies highlight its ability to overcome environmental hindrances and deliver profound results.

Stock Valuation: Upside Potential

If we look at the Price/Earnings (PE) ratio, SoFi Technologies’ shares currently trade at 37.28X forward earnings compared with the industry’s 35.35X. Despite the PE being slightly higher than the industry, it might not be a major red flag considering SOFI’s growth prospects. Companies with strong growth outlooks are often attractive to investors, who are willing to pay a premium for such stocks.

 

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Based on EV-to-EBITDA, the stock is currently trading at 10.34X, lower than the industry’s 50.51X. Such a discount is appealing to investors as well.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

Closing at $7.52 in the last trading session, the stock stands almost 39% below its 52-week high of $10.49. Furthermore, SOFI is trading below its 50-day moving average, indicating the right opportunity now to accumulate the stock.

Strong Top & Bottom-line Prospects

The Zacks Consensus Estimate for SOFI’s 2024 sales stands at $2.5 billion, indicating year-over-year growth of 18.6%. Revenues for 2025 are expected to increase 14.2% year over year.

The consensus mark for the company’s 2024 earnings stands at 9 cents per share, implying a rise from the loss of 36 cents per share reported in 2023. For 2025, the bottom line is anticipated to increase more than 100% year over year.

SoFi Technologies: A Must Buy

SOFI presents a compelling investment opportunity. Despite a price hike, the stock remains relatively less expensive, suggesting room for growth. It has witnessed a significant rise in memberships and products, and has delivered exceptional results in lending. Also, strength seen across EBITDA indicates better prospects in terms of profitability. These factors contribute to the company’s potential for sustained success.

SoFi Technologies’ solid financial health, coupled with robust top and bottom-line growth prospects, make it an attractive investment opportunity for investors seeking exposure to the fintech sector.

SOFI currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.


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