The financial services sector is one of the largest and oldest industries out there. But in the past decade or so, there has been tremendous innovation. That’s because the internet and tech advancements have created new avenues for businesses to serve customers.
This is precisely what SoFi Technologies(NASDAQ: SOFI) is doing. Its name recognition seems to get more powerful with each passing year.
However, the fintech stock has largely been a disappointment for investors. The shares currently trade about 75% off their peak in February 2021. But is SoFi now a once-in-a-generation investment opportunity while it trades well below $10?
Growth
The big money-center banks like JPMorgan Chase and Bank of America have physical branches across the country, which have long been their primary method to attract retail customers. But amid the rise of smartphones and the internet, SoFi’s business model is fully digital. The online-only bank leans on technology to cater to its user base.
Consequently, SoFi is automatically able to target a nationwide pool of potential customers because it isn’t confined to a specific geography. Moreover, its main focus has always been to provide a superior user experience.
This strategy has resulted in fantastic growth. Revenue went from $78 million in the first quarter of 2020 to $645 million in the first quarter of 2024. The customer base has also expanded at a rapid clip, and now sits at 8.1 million.
The market loves a good growth story. But what stood out to me was how SoFi benefited after the regional banking crisis in early 2023. As of March 31, the business had $21.6 billion in deposits, which was up three-fold from $7.3 billion at the end of 2022. Customers clearly view SoFi as a trusted place to park their savings.
Investors should be encouraged by the company’s long-term growth prospects. JPMorgan is the largest bank in the U.S., with $1.1 trillion in deposits in the consumer and community banking segment. That figure demonstrates how enormous this industry is. It won’t be easy, but this means SoFi is staring at a big opportunity to keep expanding its customer and deposit base, particularly with younger consumers.
Profits
It’s understandable if you automatically assume that a fast-growing fintech enterprise is unprofitable. To be clear, this was the right way to describe SoFi throughout its history. Management adopted the correct strategy of focusing on expansion.
But things are starting to change for the better. SoFi posted diluted earnings per share (EPS) of $0.02 in each of the past two quarters. And the bullish perspective is to believe that this will be the norm from now on.
It appears as though the company is finally starting to leverage its fixed costs, whether that’s sales and marketing or other corporate overhead. Executives believe SoFi will produce EPS of $0.68 (at the midpoint of their projections) in 2026. And in the years after, this metric is forecast to rise between 20% and 25% annually.
Valuation
Despite the Nasdaq Composite index trading near its all-time high, SoFi hasn’t benefited from the bullish sentiment. Its shares have tumbled about 35% in 2024. There’s an opportunity here for long-term investors. The current price-to-sales ratio of 2.8 represents a discount to the historical average multiple of 4.1.
The valuation looks more compelling when you look a few years out, while also considering the price-to-earnings ratio. SoFi’s current price of about $6.50 is less than 10 times management’s 2026 EPS outlook of $0.68. And if the bottom line continues its upward trajectory throughout the rest of this decade, investors are positioned well to achieve strong returns.
Of course, the intensely competitive nature of banking, coupled with the company’s exposure to the economic cycle, present key risks. So, I wouldn’t say SoFi is a once-in-a-generation investment opportunity. But while it sits below $10 per share, it looks like a smart buy.
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TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
