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Five Compelling Reasons to Invest in SoFi Stock Five Compelling Reasons to Invest in SoFi Stock

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SoFi Technologies (NASDAQ: SOFI) stock has been on a roller-coaster ride, leaving investors undecided about its future. After a stellar quarterly report, the stock surged, only to plummet shortly afterward.

However, despite the uncertainties surrounding this relatively young company’s ability to disrupt traditional banking, there are several compelling reasons to remain optimistic about SoFi’s future. Here are five key factors supporting an investment in SoFi stock.

1. Anticipated Strong Growth

SoFi has delivered remarkable growth rates, albeit slightly tempered in the current high-interest-rate environment. Nonetheless, its revenue growth remains robust and consistent, with a 35% year-over-year increase in the 2023 fourth quarter.

If projected interest rate cuts materialize, they will funnel more capital into SoFi’s system, translating into increased loan volumes and higher net income. Notably, the company’s lending unit, its foundational business arm, has already shown upward momentum, evident in a 45% surge in total loan originations year over year in the fourth quarter.

Management forecasts a compound annual growth rate of 20% to 25% in total revenue through 2026. Given SoFi’s consistent performance amidst significant market fluctuations in recent years, these targets appear attainable.

2. Rapidly Expanding Customer Base

SoFi is capitalizing on consumers seeking better deposit rates amid economic volatility. Its primary clientele comprises students and young professionals attracted to its user-friendly interface. The influx of young customers is propelling SoFi’s expansion, setting the stage for sustained revenue growth. The company added 585,000 new accounts in the fourth quarter, marking a 44% year-over-year increase and culminating in 7.5 million accounts by the end of 2024.

SoFi new member growth.

Image source: SoFi.

3. Strategic Investment in New Products

SoFi has adopted a financial services productivity loop strategy, expanding its suite of financial products available through its digital app to drive greater customer engagement. Following the acquisition of Golden Pacific Bancorp in 2022, the company widened its offerings to include bank accounts, investing, and credit cards alongside its lending activities. Moreover, it continues to innovate with products tailored to its tech-savvy target demographic and recently introduced an β€œalternative investments” product for SoFi Invest and developed its own exchange-traded fund (ETF) in the previous year.

The adoption of multiple products by customers is yielding cost efficiencies and bolstering profitability, evidenced by a 41% year-over-year increase in new product additions in the fourth quarter.

4. Achievement of Positive Net Income

SoFi delivered a $48 million net income in the fourth quarter, in line with its earlier promise of a generally accepted accounting principles (GAAP) profit. The company foresees this trend continuing, with a projected net income of $15 million in the first quarter of 2024 and $100 million for the full year. Although it is premature to proclaim stable profitability, the company’s ascending revenue and enhanced cost efficiency indicate a promising path toward sustained profitability.

5. Favorable Valuation

Despite robust revenue growth, SoFi’s share price has not fully reflected this performance, resulting in a decreased valuation. Currently trading at a price-to-sales ratio of 3.8, SoFi stock presents an opportunity as an undervalued asset, especially for an emerging, high-growth company on the path to profitability.

This dip presents investors with a chance to capitalize on a promising stock that may yield substantial returns in the future.

Should Investors Consider SoFi Technologies?

In weighing an investment in SoFi Technologies, it is essential to take into account that the Motley Fool Stock Advisor analyst team did not include the stock among its top 10 recommendations for investors. For investors seeking potential blockbuster returns, the 10 selected stocks may hold more appeal. The Stock Advisor service has notably outperformed the S&P 500 since 2002.*

Review the 10 recommended stocks

*Stock Advisor returns as of February 20, 2024

Jennifer Saibil holds positions in SoFi Technologies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool abides by a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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