Often investors will focus on one part of a company’s various business interests but overlook other elements that could be worth delving into.
That, says Needham analyst Kyle Peterson, is the case right now with SoFi Technologies (SOFI).
”While we believe that SOFI’s lending business is the primary near-term driver for the stock (~80% of our price target is attributed to lending), we also think that SOFI’s quickly growing interchange business and tech products/solutions (Galileo, Technisys) are underappreciated by investors,” said the analyst.
Peterson also notes that the revenue models of these businesses are similar to those in the payments and software sectors, as they avoid credit risk and “balance sheet intensity” while benefiting from inherently higher growth profiles.
And the growth seen in SOFI’s interchange revenue has been rather impressive, with Peterson believing it is indicative of “strong user engagement in the company’s core customer base.” Due to spending on both SOFI’s debit and credit cards, in Q1, interchange revenue increased by ~65% year-over-year, reaching ~$12 million. “While interchange is a small piece of the overall business, we expect it will remain one of SOFI’s fastest growing products,” Peterson further said.
Additionally, SOFI also has an “attractive asset” in its tech products/solutions segment, which the market is not appreciating enough. Peterson thinks it brings to the table “incremental growth vectors” such as an enterprise client base. This segment also enables SOFI to diversify into related products and international markets without incurring additional credit risk or using balance sheet capital to support these initiatives. In Q1, tech products and solutions revenue saw a 17.7% YoY uptick, and through his forecast period, Peterson expects this part of the business to generate 20%+ annualized organic growth. “We view this segment as a key to expanding SOFI’s overall valuation as this segment has a software revenue model, which we believe will garner a higher multiple relative to the core lending business,” he added.
Bottom-line, seeing these elements as offering potential for “long-term upside for SOFI investors,” Peterson maintained a Buy rating on the shares along with a $10 price target, a figure suggesting shares will climb 58% higher in the year ahead. (To watch Peterson’s track record, click here)
However, looking at the ratings breakdown, most of Peterson’s colleagues disagree with that stance. Based on a mix of 9 Holds, 4 Buys, and 3 Sells, the analyst consensus rates the stock a Hold. That said, there are still decent gains projected here; at $8.35, the average target makes room for 12-month returns of 32%. (See SOFI stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
