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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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and JPMorgan Chase. The Motley Fool has a disclosure policy.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
