SOFI Stock: The Overlooked Fintech Powerhouse Ready for Takeoff

Stocks to buy

SoFi Technologies‘ (NASDAQ:SOFI) stock recent Q4 results indicate increased efficiency and end market demand. The company’s tech division saw key margin expansion due to its process improvements and scalable business strategy. 

Operating expenses declined by 17%, yet SoFi’s adjusted EBITDA margin rose 74% year-over-year  for SoFi, which indicates efficient operations. The company’s financial services sector saw a $25 million contribution profit and a 115% increase in net sales to $139 million year-over-year.

I think a fundamental case can be made that SoFi is worth a buy right now. Let’s dive into why SOFI stock could be among the most overlooked companies worth buying on this recent dip, in my view.

Growth In Its Personal Loans Sector

SoFi is a well-known provider for refinancing student loans. But were you aware that since early 2021, personal loans have dominated its lending activities?

Roughly 67% of originations and balance sheet loans were made up of personal loans as of December 30. Even with an average coupon of 13.8%, these loans are certainly risky. Their unsecured nature raises the chance of defaults, which could result in more significant losses. That said, these higher interest rates should offset increased delinquencies and defaults, and this is a segment I think investors may be sleeping on right now.

Of course, student loan repayment growth has been impressive, with many students seemingly looking to refinance their forgotten about student loans. Approximately 40% of all student loans saw their first payment missed in October, suggesting a flood of growth in this space. CEO Anthony Noto note a 95% increase in student loan originations year-over-year to $790 million last quarter.

SoFi is a financial technology innovator that grows like a digital company. However, fluctuations in interest rates do create cycles and affect the company’s lending dynamics. That said, I do think this current environment is broadly bullish for SoFi, particularly within the personal loan and student loan arenas.

Possible Headwinds

The Federal Reserve’s rate hikes have created economic hurdles, but SoFi’s digital banking business model seems to be jumping over these hurdles easily. The company’s revenue surpassed the $2.1 billion mark in 2023, up 35%, while SoFi’s client base grew by 44% to 7.5 million. Additionally, the company’s deposit base increased by 155% to $18.6 billion in response to local banking concerns.

SoFi generates deposits for loan growth thanks to its impressive 4.6% savings account rate and increased FDIC insurance of up to $2 million. With $48 million in net income in Q4, SoFi has showed both stability and sustainability in its finances. This report was certainly a feat worthy of celebration. 

A trend to look forward to is projected earnings per share of 55 to 80 cents by 2026. Plus, there’s annualized growth of 20% to 25% expected to come in further out years.

SOFI Stock Remains a Buy

With its well-known brand and easy-to-use interface, SoFi happily welcomes well-off, tech-savvy clients. The benefits from high switching costs include cross-selling opportunities since the members’ requirements change. With expected long-term gains, a price-to-sales ratio of 3.7-times provides a solid pathway for investors looking to buy right now.

In my view, SOFI stock is among the more overlooked gems in the fintech world. Given its strong growth catalysts, this is a company I think is undervalued relative to its future potential.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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