SoFi Technologies (SOFI) Surges 11.6% in a Month: Is It Time to Buy?
Shares of SoFi Technologies, Inc. (SOFI) have experienced a significant surge of 11.6% over the past month, outperforming both its industry and the broader market. This upward trajectory comes on the heels of two profitable quarters for the company, with adjusted net revenue growing 26% year-over-year in the first quarter of 2024. While SoFi’s recent performance is promising, investors are understandably asking: is now the right time to get in on the action?
Key Takeaways:
- SoFi stock has seen a 11.6% increase in the last month, outpacing its industry (down 3.2%) and the broader market (down 2%).
- The company has reported two consecutive profitable quarters, with strong revenue growth and expanding margins.
- SoFi’s Galileo platform, a key asset for its banking business, is seeing adoption by other fintech companies, potentially positioning it for further market share gains.
- While the digitalization trend in the financial sector is a significant tailwind for SoFi, the stock’s current valuation and the impact of student loan forgiveness remain concerns.
- Despite a positive outlook, the stock’s high valuation and potential risks suggest a wait-and-see approach may be prudent.
SoFi’s Strong Performance & Growth Prospects
SoFi’s recent stock performance reflects the positive investor sentiment surrounding the company’s financial technology platform. The first quarter of 2024 saw a 26% year-over-year jump in adjusted net revenue, while the EBITDA margin improved by 840 basis points to 25%. This strong performance is driven in part by the company’s growing focus on digital banking and its suite of products and services.
The Galileo Factor
One key driver of SoFi’s success is its Galileo platform. This technology platform is not only integral to SoFi’s own banking operations but is also being adopted by other fintech companies, signifying its growing influence in the financial sector. This expansion places SoFi in a strong position to capitalize on the shift away from traditional banks, as companies like JPMorgan (JPM), Bank of America (BAC), and Wells Fargo (WFC) are experiencing slower growth.
Tailwinds from Digitalization and Interest Rates
The increasing digitalization across industries, particularly in the financial sector, is a major tailwind for SoFi. The company’s focus on online banking positions it to benefit from the expected rise in demand for digital financial platforms. Additionally, anticipated reductions in federal fund rates by 2025 due to slowing inflation could further benefit SoFi’s lending segment, leading to increased credit activity and lower depositor charges.
Positive Earnings Outlook & Potential Risks
SoFi’s earnings outlook is also positive. The Zacks Consensus Estimate for 2024 earnings is pegged at 8 cents, indicating a 122% year-over-year increase. Earnings for 2025 are expected to grow even further, rising 202% compared to the previous year. The company’s sales are also projected to experience substantial growth, with 15% and 17% year-over-year increases anticipated in 2024 and 2025, respectively.
Student Loan Forgiveness: A Potential Overhang
However, despite this positive outlook, the recent decision by the Biden administration to forgive $1.2 billion in student loans for 35,000 public service workers under the Public Service Loan Forgiveness program could pose a challenge to SoFi’s lending business moving forward. This decision could impact student loan originations and repayments, potentially impacting the company’s revenue.
Valuation & Short-Term Liquidity
Furthermore, SoFi’s stock currently appears overvalued. The forward 12-month Price/Earnings ratio stands at 41.3X forward earnings, exceeding the industry average of 36.48X. The stock’s current position above its 50-day moving average and its relative strength index (RSI) suggest it may be in the overbought zone.
At the end of the first quarter of 2024, SoFi’s current ratio was 0.93, slightly lower than the industry average of 0.95. While this indicates a slight challenge for the company in meeting short-term obligations, the recent strong revenue growth makes this a short-term concern for now.
Wait and Watch for a More Favorable Entry Point
While SoFi’s recent performance and long-term growth prospects are promising, investors should exercise caution given the current valuation and potential risks. The positive sentiment surrounding the company’s Galileo platform and the favorable industry conditions are strong drivers of future growth. However, the high valuation and the potential impact of student loan forgiveness call for a more strategic approach.
Investors might consider waiting for a more favorable entry point before taking a position in SoFi. As the financial sector continues to evolve, SoFi’s innovative platform and strong market position indicate that it remains a company to watch. However, timing the investment will be key to maximizing returns. SoFi currently carries a Zacks Rank #3 (Hold).
