Up 77% This Year: Is SoFi Still a Good Value?

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SoFi Technologies (NASDAQ:SOFI) has been one of the top performers on the market this year, with its stock price up about 77% year to date as of Oct. 10. The fintech, or financial technology company, is trading at around $8.18 per share, which makes it a cheap stock as far as its entry price goes. However, a cheap entry price does not always indicate that a stock is good value.

Let’s take a deeper dive and examine whether this popular fintech is trading at an attractive valuation or if the huge run-up has made it a stock to avoid right now.

SoFi has some key advantages

SoFi is a fintech with a couple of unique advantages. The company started as a lender for student loans, but over the years, it has branched out by providing a broader suite of financial services. It has three main business lines: lending, technology and financial services. The lending business is its largest revenue generator, accounting for $331 million in revenue in the second quarter or about two-thirds of the $498 million in total revenue in the quarter.

A couple of things have provided this segment with a boost in recent years. The first is the banking charter that SoFi obtained in early 2022 via the acquisition of Golden Pacific Bancorp, a small California bank. Very few fintechs have bank charters, so it gives SoFi an advantage because it can accept deposits and use those deposits to fund loans, as opposed to other fintechs, which have to partner with third-party lenders to fund loans and either pay fees or share revenue. This has helped SoFi ramp up the number of personal loans it has issued. In the second quarter, it had a record $3.7 billion in personal loan originations, up 51% year over year and 27% from the previous quarter.

This has also helped offset some of the losses in the student loan segment, as the post-COVID moratorium on student loan repayments in the U.S. has hurt this business segment. However, the moratorium was lifted this past spring, and student loan repayments started up again on Oct. 1 after a more than three-year pause. This should provide SoFi with a revenue boost in the fourth quarter and beyond.

The bank charter has also helped bolster SoFi’s financial services business, which includes its traditional banking services, investment platform, credit cards and other financial services. Revenue in this segment hit a record $98 million in Q2, up 223% year over year.

The other key advantage that SoFi has is its technology platform. It acquired a company called Galileo Financial Technologies in 2020, which allows it to provide other businesses with banking-as-a-service (BaaS), or the ability to offer their own payment platforms and financial services. This segment generated $88 million in revenue in the second quarter, giving SoFi a revenue stream that its main competitors don’t have.

Growth has been staggering

SoFi has grown rapidly in the past few years. In the most recent quarter, revenue was up 37% year over year, led by the the technology platform and financial services, which both had record revenue.

SoFi added 584,000 new members, or customers, in the quarter, giving them 6.2 million overall, up 44% year over year. It also had 847,000 new product additions, which refers to the aggregate number of SoFi products that customers use. Overall, SoFi had 9.4 million total products at quarter-end, up 43% from the second quarter of 2022.

While growth has been steady and strong, the company is still not profitable. It had a $47.5 million net loss in the most recent quarter, down from $96 million a year ago in the same quarter. This is due to the high expenses associated with ramping up the growing business. However, the company is gradually moving toward profitability.

The stock was up about 77% year to date as of Oct. 10. However, in 2022, SoFi shares were down 70%. With a net loss, there is a no price-to-earnings (P/E) ratio, but you can look at other metrics, like the price-to-sales (P/S) ratio, which measures the stock price in relation to its revenue. The P/S ratio is just over 4, which is down from 4.5 on June 20.

That’s normally considered high, but for a high-growth company like SoFi, which should get an additional boost from the end of the moratorium on student loan repayments, it looks like it still has room to run.

In fact, management raised its guidance for full-year adjusted net revenue in the last quarter to a range of $1.974 billion to $2.034 billion, up from its previous guidance of $1.955 billion to $2.02 billion. The company also expects to achieve net income profitability in the fourth quarter, which would be a major milestone.

At the end of the day, while SoFi is not a stock one would call cheap despite its roughly $8 entry price, there remains some solid upside growth potential in the name. Stay tuned for third-quarter earnings, which should bring more visibility.