In this piece, I evaluated two online lending stocks, SoFi Technologies (NASDAQ:SOFI) and LendingClub (NYSE:LC), using TipRanks’ comparison tool to determine which is better. A deeper analysis suggests a bullish view might be appropriate for both stocks, although with different timelines for these two bull cases to play out.
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SoFi Technologies shares are still up 65% year-to-date following a 6% tumble on November 6, and they’re up 45.5% over the last 12 months. Meanwhile, LendingClub stock is off 30% year-to-date and has plummeted 38% over the last year.
With such a dramatic difference in their stock price performances, it’s no surprise that one company is profitable while the other is not. However, what is a surprise is that LendingClub is the profitable one, while SoFi Technologies has never turned a profit despite its soaring revenues.
Since SoFi is not profitable, we’ll compare the two companies’ price-to-sales (P/S) ratios to gauge their valuations against each other. For comparison, the diversified financials industry is trading at a P/S of 3.3, compared to its three-year average of 2.5.
Since SoFi and LendingClub are financial companies, we’ll also consider their price-to-book ratios as a second way to gauge valuation. Broadly, a P/B below 1.0 suggests a discount, while anything above is considered a premium. However, a closer look is needed to determine whether any premium or discount may be warranted.
SoFi Technologies (NASDAQ:SOFI)
At a P/S of 4.0 and a P/B of 1.5, SoFi Technologies is trading at a premium to its industry and LendingClub. However, the company is also trading well below where it stood following its June 2021 merger with a special purpose acquisition company (SPAC), which took it public. Given that profitability appears right around the corner, a bullish view seems appropriate — despite the year-to-date run-up in the shares.
Of course, it’s natural for tech-related stocks to soar right out of the gate before dropping back down. However, it’s also common for such stocks to surge after a major catalyst, and becoming profitable after years of losing money would probably qualify as such a catalyst.
SoFi’s losses have been narrowing, and it posted record GAAP (generally accepted accounting principles) and adjusted net revenue for the third quarter, the tenth straight quarter of adjusted net revenue. In fact, the company’s latest earnings report was glowing across the board, especially considering the challenging macroeconomic environment we’ve seen this year. SoFi is even growing beyond online lending by adding investment, banking, and insurance products to its offerings.
In its third-quarter earnings release, management also guided for GAAP net profitability in the fourth quarter, a major milestone because it indicates that a company is profitable without any adjustments to its earnings. Meanwhile, analysts are calling for full-year profitability in 2024. All of this looks bullish for the stock.
What is the Price Target for SOFI Stock?
SoFi Technologies has a Moderate Buy consensus rating based on five Buys, six Holds, and one Sell rating assigned over the last three months. At $9.88, the average SoFi Technologies stock price target implies upside potential of 33.2%.
LendingClub (NYSE:LC)
At a P/S of 0.55 and a P/B of 0.54, LendingClub is trading at a steep discount to its industry and SoFi. Unfortunately, the market just doesn’t like this stock right now, although it did reverse course and start to tick higher after the latest earnings report in late October. While LendingClub does face some challenges right now, the recent bump in its stock price seems like just a small taste of what’s to come. Thus, a bullish view seems appropriate for now.
At the current price, LendingClub is trading close to its 52-week low and even not far from its record lows. In fact, insiders have been taking advantage of the low stock price by steadily buying more and more shares. While $622,600 worth of Informative Buy transactions doesn’t seem like much, it does show a steady stream of purchases by insiders, which is certainly a bullish signal for LendingClub.
Meanwhile, the company posted mixed third-quarter results and announced plans for a 14% reduction in its workforce. The good thing is that LendingClub expects those job cuts to save it at least $7.5 million in operating expenses per quarter.
Unfortunately, the weak macroeconomic environment we’ve seen has weighed more heavily on LendingClub than on SoFi because LendingClub focuses more on personal loans, while SoFi has expanded heavily into investing and other areas. However, LendingClub is priced for total destruction, which doesn’t seem likely. Recovery may take some time, but the stock looks too cheap to pass up right now.
What is the Price Target for LC Stock?
LendingClub has a Strong Buy consensus rating based on four Buys, one Hold, and zero Sell ratings assigned over the last three months. At $9.60, the average LendingClub stock price target implies upside potential of 69.6%.
Conclusion: Bullish on SOFI and LC
While SoFi Technologies and LendingClub both receive bullish ratings, the bull case for SoFi may play out much faster than the bull case for LendingClub. The bullish view of SoFi will likely become apparent over the next year or so as the company demonstrates growing profitability.
However, LendingClub may take much longer to recover due to its different services mix that’s focused more heavily on personal loans, which makes it more susceptible to economic turmoil.
