SoFi Technologies (NASDAQ:SOFI) stock has experienced a long decline over the past year, now trading near its 52-week low. The fintech platform for personal finance has lost about 24% of its value during this period despite the overall market reaching new highs by the week. This is a strange development, especially given that the company has sustained strong revenue growth and achieved considerable margin expansion. Given the contrast between SoFi’s financial performance and share price, I am bullish on the stock.
SoFi’s Momentum Shows No Signs of Slowing Down
SoFi sustained strong momentum entering Fiscal 2024, showing no signs of a slowdown. Despite the share price suggesting a deteriorating performance, this is hardly the case, with revenues rising by 37.5% to roughly $645 million in its most recent Q1 results. This is in line with the previous quarter’s growth of 36.6%, not too far from last year’s growth of 46.1%.
These numbers far exceed what you see in fintech today. Take PayPal (NASDAQ:PYPL), for example, whose revenues increased by 9.4% during the same period. Others, like Block (NYSE:SQ) and StoneCo (NYSE:STNE), grew their revenues by 19.4% and 15.5%, respectively. While these companies differ in their offerings and solutions, they collectively illustrate that SoFi’s growth surpasses current industry standards.
SoFi’s impressive growth can be mainly attributed to its increasing member base and the rising number of products offered on its platform. The total number of members reached 8.1 million in Q1, up 44% from last year, with 622,000 new members joining during this period. This rate matches the 44% increase from the previous quarter and is close to last year’s 46% growth, suggesting that SoFi’s brand remains highly relevant and trending in the fintech space. Also, SoFi reported 989,000 new product additions in the quarter, representing a 38% increase compared to Q1 2023.
Margin Expansion Drives GAAP Profits, Exposes Cheap Valuation
With SoFi sustaining strong revenue growth and thus creating room to improve its unit economies, the company is about to post its first year of GAAP net income. Basically, SoFi has broadly bolstered its brand value and thus doesn’t have to advertise as much as before for each incremental user addition. Therefore, its margins have been on the rise. In Q1, for example, SoFi’s sales and marketing expenses were $167.4 million, down from $175.2 million, without sacrificing its user growth potential.
Thus, SoFi achieved a positive GAAP net income margin of 13.8%, continuing the positive trend that started in the fourth quarter of 2023. Following numerous quarters of negative margins, SoFi has shown that its business model is, after all, highly viable. In any case, with positive margins now on the horizon, Wall Street expects that Fiscal 2024 will be the first profitable GAAP year for the company, with earnings per share (EPS) set to land close to $0.08.
Of course, that’s a tiny profit. However, with revenue growth expected to remain in the double-digits and margins to keep expanding rapidly, EPS consensus estimates over the medium term seem particularly compelling. Wall Street sees EPS of $0.23 in FY2025 and $0.44 in FY2026.
These numbers show that SoFi is very attractively priced at its current levels. At just 14.5 times its FY2026 EPS prospects, it seems like a very cheap multiple, given that the company is taking the industry by storm. Sure, there is some speculation involved here, yet SoFi’s momentum strongly supports this assessment.
Another reason I love SoFi at this multiple is because the company’s dilution has been decreasing. If SoFi was aggressively diluting shareholders through significant stock-based compensation (SBC) levels, as is common in the space, its valuation metrics should be taken with a grain of salt. However, SoFi’s SBC is declining both in aggregate and as a percentage of revenue. It came in at $55.1 million in Q1, down from $64.2 million last year and $77.0 million the year before.
Is SOFI Stock a Buy, According to Analysts?
Despite its prolonged decline, Wall Street seems to still have mixed feelings about the stock. Specifically, SoFi Technologies has gathered a Hold consensus rating based on four Buys, nine Holds, and three Sells assigned in the past three months. At $8.35, the average SoFi Technologies stock price target implies 26.3% upside potential.
The Takeaway
Overall, SoFi stock seems to present a compelling case following its ongoing decline. With robust revenue growth, expanding margins, and a growing member base despite trimming marketing costs, it’s evident that management’s execution has been excellent. Furthermore, with SoFi now being profitable on a GAAP basis, there is much less risk involved compared to a couple of years ago when the company was losing money. With a strong EPS medium-term outlook and a declining share price, which have resulted in an increasingly attractive valuation, it seems like a prime time to go long on the stock.
