SoFi (NASDAQ:SOFI) has been a roller coaster for long-term investors. The stock has fallen by roughly 30% over the past five years and has gained more than 25% over the past year. It’s also down 24% year-to-date as the fintech corporation goes through more peaks and valleys. Nonetheless, the stock may be ready to shine. I am bullish on SoFi stock due to its significant profit margin expansion and high revenue growth.
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The First Profitable Quarter
SoFi recently reported its first profitable quarter — Q4 2023. Net income came in at $47.9 million compared to a $40.0 million net loss in the same period last year. The turnaround brought SoFi’s Q4-2023 profit margin to 7.94%.
SoFi offers a wide range of services, including banking, investing, loans, insurance, and credit cards. The company offers high yields for its savings accounts that are more competitive than those of most banks.
The fintech company has a good opportunity to increase net profit margins. Many bank stocks have net profit margins above 10% while operating physical locations. Meanwhile, SoFi does not have any physical branches, which reduces its operating costs.
SoFi still has an elevated forward P/E ratio that currently stands at 104x. However, if SoFi maintains $47.9 million in net income for the next three quarters, its P/E ratio will be under 40x. That’s still higher than most bank stocks, but the valuation can drop in a hurry as SoFi increases its profits.
Revenue Growth Remains Elevated
SoFi has consistently delivered impressive revenue growth and continued that trend with a 35% year-over-year increase in revenue. That’s the same growth rate for SoFi’s full-year revenue growth in 2023.
Nevertheless, SoFi’s guidance for Q1 2024 doesn’t suggest that we will see another quarter of 30%+ year-over-year revenue growth. The fintech firm expects to generate $550 million to $560 million in revenue, up from $464 million in the same period last year. The guidance range implies that SoFi will grow its revenue by 18.5% to 20.7% year-over-year. SoFi also expects a 30% year-over-year increase in the number of members.
Management anticipates that the company’s compound annual revenue growth will range from 20% to 25% from now until the end of 2026. The company also anticipates EPS growth to range from 20% to 25% each year beyond 2026.
SoFi Is a Relatively Small Banking Stock
SoFi only has a $7 billion market cap. Other banks command much higher valuations, and rightfully so because large banks are more established and offer more predictability for long-term investors. Regardless, SoFi has aimed to revolutionize finance and has attracted a large user base of 7.5 million individuals. SoFi added 2.3 million new members from Q4 2022 to Q4 2023. That’s a 44% year-over-year increase.
The average revenue per user is likely to increase as SoFi launches additional financial products and makes its existing offers more enticing. Its current product mix is performing well. Total products increased by 41% year-over-year. 695,000 new products were added, resulting in a total of 11.1 million lending and financial services products.
SoFi can expand its profit margins with its current member base. Yet, the company has the potential to attract even more users and has plenty of room to grow. SoFi increased its total members by 44% year-over-year. This growth rate is anticipated to slow down in future quarters as SoFi captures more market share. However, it is expected to remain high for some time as SoFi continues to attract new users with offers that few banks can match.
Is SOFI Stock a Buy, According to Analysts?
Analysts are mixed on SOFI stock and have currently rated it as a Hold. Four analysts rated it a Buy, while four analysts believe it is a Sell. The remaining eight analysts rated SOFI stock a Hold. The average SOFI stock price target of $9.09 suggests 24.5% upside, but the highest and lowest price targets demonstrate a wide range of opinions.
The highest price target of $15 per share suggests the stock can more than double from current levels. However, the lowest price target of $3 per share implies the stock can fall by more than 50% from its current price point.
The Bottom Line on SOFI Stock
SoFi is an interesting bank stock opportunity. The company recently reported its first profitable quarter and is still growing its user base at a solid rate. SoFi has the opportunity to expand profit margins significantly since it doesn’t have physical branches. Commercial real estate costs weigh down on many financial institutions, although several of these same firms post better profit margins than SoFi.
The firm is attracting millennials and Gen Z consumers who want online banking and a simplified experience. Almost every bank has mobile apps and websites, but SoFi’s virtual nature allows it to offer more competitive rates for its loans and high-yield savings accounts.
Therefore, SoFi has the potential to become a giant in the banking industry. Investors jumped the gun in 2021, but the stock’s repressed price point and potential to generate high cash flow can turn it into a long-term winner.
