The fintech space is one which has brought banking to the masses. Financial products that have remained out of reach of millions of individuals are now becoming mainstream. For investors in Social Finance, Inc. (SOFI), now is a great time to be investing.
Now, SoFi stock has certainly been on a rather bumpy ride of late. One of Chamatch Palihapitiya’s recent SPACs, SoFi has ebbed and flowed along with capital into and out of the SPAC world. As a de-SPAC company trading on its own merits, SoFi’s upcoming earnings report on Aug. 12 will shed some much-needed light on how this company’s growth prospects look from here.
Let’s take a look at why SoFi stock may be a bright light in the fintech space right now. (See SoFi Technologies stock chart on TipRanks)
Business Model Built for Success
SoFi’s business model is relatively simple. The company offers a one-stop shop where members can find everything they need from a financial perspective. This approach has been extremely successful, with SoFi more than doubling its members in the past year.
SoFi’s ability to tap into the millennial banking population is something that has made it a quasi-meme stock among younger, long-term investors. SoFi offers a range of services, starting with a basic checking or savings account and a debit card with zero fees. Sounds simple enough. (See Bank Stock Comparison on TipRanks)
However, the company’s offerings also include Galileo Financial Technologies, a true fintech company. Additionally, trading services for crypto bring SoFi’s overall portfolio of financial services to a younger audience. (See Cryptocurrency Stock Comparison on TipRanks)
The hope many investors have is that as these customers age, they’ll tap into SoFi’s diversified loan products and other revenue-generating businesses over time.
Valuation Concerns an Issue
SoFi’s EBITDA margin recently turned profitable, with a gross margin hovering around 70%. Should the company’s revenue continue to grow at a forward-looking rate of around 58% for this year, the numbers will look a lot better.
That said, there are risks related to the company’s valuation. Currently, SoFi is a company that trades around 13x this year’s expected sales of nearly $1 billion. In other words, in order for this company’s valuation to continue to grow, SoFi will need to continue to grow its loan book at this current rate, or potentially faster.
Doing so in a manner that’s fiscally responsible (without taking on too many high-risk loans) is the key focal point of many investors. The question of just how responsible SoFi’s customer base is relative to the overall market is a question many investors have right now. Accordingly, this is a stock that some investors believe is simply too richly valued at these levels.
Wall Street's Take
According to TipRanks’ analyst rating consensus, SoFi stock comes in as a Moderate Buy. Out of two analyst ratings, there are two Buy recommendations.
As for price targets, the average SoFi price target is $27.50. Analyst price targets range from a low of $25.00 per share to a high of $30.00 per share.
SoFi stock is one that is certainly polarizing in many respects. On the one hand, this is a company with a tremendous valuation. SoFi will need to continue to grow rapidly to justify this valuation. Any sort of inkling that growth may slow, interest rates may rise, or loan quality could deteriorate, and this is a company that could see some downside pressure.
However, if the economy rebounds fully from this pandemic, and things return to normal, this is a company with excellent long-term growth prospects. Accordingly, long-term investors would do well to put this stock on their watch list right now.
Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.