SoFi stock is cheap; comeback could be epic

SoFi Technology (SOFI) stock has become a fallen angel despite its strong growth metrics and positioning at the intersection of finance and technology. Although it has risen by over 75% from its lowest point in 2023, it remains 74% below the highest point in 2021 as fintech stocks surged.

Strong growth and narrowing losses

SoFi Technology is one of the fastest-growing companies in the fintech industry and its financials demonstrate this.

Its annual revenue has jumped from over $565 million in 2020 to over $2 billion in the last financial year. Its trailing twelve months (TTM) revenue has soared to over $2.3 million and the management and investors believe that it has more room to go.

SoFi’s growth is also reflected in the surge of its members. Before Covid, it had just 1.086 members using its platform. In the last quarter, this number had grown to over 8.7 million. It added 643k customers in the last quarter. 

Additionally, its products have soared from 1.44 million in Q1’20 to over 12.7 million while Galileo accounts have moved to 158 million. Galileo is part of SoFi’s ecosystem that provides payment infrastructure to many fintech companies. It is used by companies like Toast, Monzo, MoneyLion, and Dave. 

SoFi’s benefit is that it acts as a money supermarket that offers numerous products and services. Some of its most notable solutions are personal loans, banking, investing, credit card, insurance, and student loans. This means that customers can fully depend on its solution without needing to use other companies like Robinhood and Schwab. 

These products helps it generate revenue in various ways. While interest is its biggest revenue source, it also collects substantial fees. Interest revenue stood at over $412 million in the last quarter while the others were $175 million. 

SoFi is also on a path towards profitability. Its adjusted EBITDA in Q2’24 rose by 23% to $138 million from $98 million a year earlier. As it has done many times before, these numbers were higher than its previous guidance. 

Analysts believe that SoFi’s revenue and profitability growth will continue accelerating in the next few years. 9 analysts tracked by Yahoo Finance estimate that its revenue in the current quarter will be $631 million, up from the $530 million it made in Q3’23.

For the year, the company is expected to grow by 18% to $2.45 billion. SoFi is also expected to become profitable, with its earnings per share seen coming in at $0.1 this year, up from -$0.36 last year. 

SoFi seems undervalued

Therefore, there are signs that SoFi is highly undervalued, especially when compared with other fintech companies. 

SoFi has not been a profitable company, meaning that it cannot be valued in terms of its price-to-earnings ratio. 

SoFi’s market cap stands at $7.7 billion and has $3.21 billion in total debt and $2.3 billion in cash. This means its total enterprise value – market cap + total debt – cash and equivalents – stands at $8.61 billion.

Its price-to-sales ratio is 3.08, which is lower than that of some other fintech companies like Upstart, Nu Bank,  and Affirm. This ratio is higher than some other companies like Block and PayPal, which have 1.72% and 2.46%. 

Using its estimated 2024 and 2025 revenue figures of $2.45 billion and $2.82 billion, the company has forward P/S multiples of 2.89 and 2.51, respectively. 

Also, big banks like JP Morgan, Citigroup, and Bank of America trade with a significantly higher P/S ratio. JPMorgan has a P/S multiple of 3.87 while Bank of America has 3.45. Therefore, since it is growing at a faster momentum, we can assume that it is not all that expensive.

SoFi’s revenue is expected to hit $2.82 billion in 2026. If growth stalls at that level and if it is able to match the median net profit margin of 22.45%, it means that it can generate an annual profit of over $633 million, meaning that its forward P/E ratio, in this case, would be 12.16.

SoFi stock price forecast

The weekly chart shows that the SoFi share price has risen for three consecutive weeks. Still, it remains significantly below the year-to-date high of $10.43. It is also below the 23.6% Fibonacci Retracement point at $9.90.

Notably, the accumulation and distribution indicator has continued dropping, meaning that it is not seeing any major accumulation. The smart money index (SMI) has also been in a downtrend, likely as investors anticipate the impact of Federal Reserve rate cuts. 

Still, I believe that the stock will bounce back in the coming months. If this happens, the initial level to watch will be at $10.43, higher than the current $7.3. A break above that level will see it rise to $11.70, its 2023 high.